Comerica Incorporated

2016 Annual Report

Our Core Values

Customer-centricity

Collaboration

Integrity

Excellence

Agility

Diversity

Involvement

Comerica Incorporated (NYSE: CMA) is a financial services company headquartered in Dallas, Texas, and
strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth Management.
Comerica focuses on relationships, and helping people and businesses be successful. In addition to Texas,
Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses
operating in several other states, as well as in Canada and Mexico.

To Our Shareholders

Ralph W. Babb Jr.
Chairman and Chief Executive Officer

We have taken significant steps to transform our company for the better. As a result of the hard work of our entire
team, an action-oriented improvement plan and a sharp focus on results, we emerged from 2016 a stronger and
more confident organization, well positioned for the road ahead. This was positively reflected in our stock’s
performance and increased profitability as we moved through the year.

As always, we are committed to providing exceptional experiences for our customers and serving as their trusted
advisor, while diligently working to reduce costs and drive efficiencies. Although we have consistently posted
superior average loans and deposits per employee relative to our peers, we recognized that we needed to do more
to improve returns and enhance shareholder value. As a result, in July 2016, we announced a transformational,
enterprise-wide initiative to help grow efficiency and revenues, which we call GEAR Up.

Today, GEAR Up is already making a substantial contribution to our bottom line. Through GEAR Up, we identified
and began in earnest executing on more than 20 work streams. As promised, we achieved more than $25 million
in expense savings in 2016. In total, by the end of 2018, we expect to drive at least $270 million in additional pretax
income, relative to when we began the program.

Expanded product offerings, enhanced sales tools and training and better customer analytics are expected to
increase customer penetration of our products. We’ve also streamlined leadership across our organization to
support speed and simplicity of getting business done, which has resulted in renewed vigor and focus for our
colleagues.

Workforce reductions included the elimination of about 30 percent of our management positions in order to get
closer to our customers and accelerate decision making, while ensuring we maintain our high standards for
customer service and deep expertise and experience. Our new retirement program continues to provide highly
competitive benefits and is expected to contribute approximately $33 million in savings in 2017. We are
implementing technological enhancements, such as digitizing our credit processes to enhance data collection and
analysis and improve the customer experience, as well as optimizing our infrastructure and substantially reducing
the number of IT applications across the bank.

And we have also begun rationalizing our real estate. While we remain committed to our footprint, with the
advancement of technology and customers' migration to a broader use of digital channels, we need less space to
operate our business. The consolidation of 38 banking centers, or about eight percent of our network, of which
four were closed in the second quarter and 15 were closed in the fourth quarter, is expected to result in $10
million to $13 million per annum in savings. This is net of customer attrition, which is expected to be nominal as
we have another banking center within two to five miles for the bulk of the locations that are being closed. Also,
we have developed a plan to consolidate operations and office space, and are targeting a 500,000-square-foot
reduction in real estate, which should result in approximately $7 million in savings in 2018.

Collectively, these actions take us a long way towards our goal of achieving a double-digit return on equity in 2018.
We expect to meet or exceed this goal with sustained growth, net of investment, normal credit costs, continued
equity buybacks and assuming only a modest increase in rates. In addition, we are targeting an efficiency ratio of
at or below 60 percent by year-end 2018 and we believe that the December increase in rates will help us reach this
goal even faster. Importantly, while rising rates can be a significant benefit to Comerica, we are committed to these
initiatives and are not relying on rate increases or a better economic environment to achieve our objectives.

We believe our stock’s performance in part reflects that investors recognize the value of our GEAR Up initiative. In
2016, Comerica's stock increased 63 percent, compared to a year ago, outperforming all of our peers as well as the
KBW Index and S&P 500 Index. In fact, in the S&P 500 Index, we were the best performing financial stock and
among the top 10 performers overall.

I, along with our executive team, remain very confident that we will continue to meet the financial targets that we
have established for GEAR Up. We expect the actions we are taking will ensure that we remain a strong partner
and trusted advisor for our clients in the future, while enhancing shareholder value and achieving a higher level of
returns for our shareholders.

2016 Financial Highlights

We reported 2016 net income of $477 million or $2.68 per share, which included $0.34 in restructuring charges. Earnings per share increased six percent over 2015, excluding these restructuring charges,* as we began to reap the benefits of our GEAR Up initiatives, as well as rising rates. Also, we increased the size of our equity buyback by 25 percent, which is a reflection of our strong capital position and solid financial performance.

Excluding the $641 million reduction in energy loans, average loans increased over $1 billion or 2 percent. The
most notable increases in average loans came from areas where we have deep expertise, such as Commercial Real
Estate, National Dealer Services, and Mortgage Banker Finance.

Average deposits have grown 32 percent over the last five years and reflect our focus on building long-term client
relationships. In 2016, noninterest-bearing deposits increased $1.7 billion, or 6 percent, while interest-bearing
deposits declined $2.2 billion. Altogether, total average deposits declined one percent and reflected the
adjustments made in early 2016 for the new Liquidity Coverage Ratio (LCR) requirements, which were mostly
offset by significant growth in the third and fourth quarter of 2016.

*Earnings per share decreased 6 percent over 2015, including restructuring charges. For 2016, earnings per share excluding restructuring charges is calculated by taking the net income available to common shareholders ($473 million), plus restructuring charges net of tax ($59 million), divided by diluted average common shares (177 million).

We had $1.8 billion of net interest income in 2016, an increase of 6 percent, primarily the result of higher interest rates, loan growth and a larger securities portfolio, partially offset by modestly higher debt costs.

Credit quality continued to be strong. The provision for credit losses increased primarily due to a larger reserve
required for Energy loans in the first quarter of 2016, partially offset by improvements in the remainder of the
portfolio. Net charge-offs of 32 basis points were at the low end of our through-the-cycle average, and excluding
energy line of business, our net charge-offs were 13 basis points.

With respect to noninterest income, customer-driven fees increased $22 million, or over two percent. We had a
large increase in card fees, as well as growth in fiduciary, foreign exchange and brokerage fees as we continue to
focus on growing and expanding relationships.

Noninterest expenses declined $23 million after excluding restructuring charges of $93 million, as well as a $33
million release of litigation reserves in 2015. Our GEAR Up initiative drove over $25 million in expense savings.

In June 2016, we announced that the Federal Reserve did not object to our 2016 Capital Plan. In April and July
2016, our board of directors increased the quarterly cash dividend for common stock by 5 percent and 4.5 percent,
respectively, to 23 cents per share. We repurchased 6.6 million shares in 2016 under our equity repurchase
program. Through the buyback and dividends, we returned $458 million, or 96 percent, of 2016 net income to
shareholders. Our regulatory capital levels remain comfortably above the threshold to be considered well-capitalized.

In summary, the skillful execution of our GEAR Up initiative, a modest rise in rates, and a 25 percent increase in our
equity repurchase program resulted in a six percent increase in our 2016 earnings per share before restructuring
expenses, and improvements in our efficiency ratio and returns on assets and equity. Our book value increased
three percent over the past year, to $44.47, and tangible book value per share increased four percent over the past
year, to $40.79, as we continue to focus on creating long-term shareholder value.**

Our relationship banking strategy and balanced geographic markets are important drivers of our success. Comerica
strives to be the trusted advisor to our clients, providing them with financial products and services they need to
prosper. Our geographic footprint is well situated and provides diversity and significant growth opportunities. We
remain committed to delivering exceptional customer experiences that exceed expectations and deliver a higher
level of banking.

Regarding our footprint, we have a strong presence in the major metropolitan areas of Texas, California and
Michigan, providing us with a balanced market presence. We also have locations in Arizona and Florida, with
certain businesses operating in several other states, as well as Canada and Mexico. While our unique geographic
footprint provides us with economic diversity, we operate as ‘one bank’ and our policies, procedures and systems
are integrated across our footprint. A single platform provides significant synergies and is highly efficient and cost
effective.

TEXAS: We’ve had a presence in Texas for almost three decades and moved our corporate headquarters to Dallas
nearly 10 years ago. We have operations throughout Dallas-Fort Worth, Houston, Austin, and San Antonio. We
continue to leverage our standing as the largest U.S. commercial bank headquartered in the state to generate new
customer relationships.

The Texas economy has proved to be very resilient in adjusting to the challenging low oil price environment. We
believe that the state’s important energy sector is starting to turn the corner, aided by firmer prices and strong
demand. We expect Texas to continue to generate new jobs and business opportunities, supported by a healthier
energy sector and a stronger U.S. economy in 2017.

CALIFORNIA: We have had a presence in California for more than 25 years. San Jose serves as our market
headquarters. Additionally, we have a presence in the Greater San Francisco area, Los Angeles, Orange County, San
Diego, Sacramento, and Santa Cruz/Monterey.

We expect California’s economy to be a solid performer in 2017. Expanding U.S. and global economies plus the
accelerated diffusion of new technologies into the broader economy will support the state’s important technology
sector. Likewise, improving domestic and international economic conditions are positive factors for the state’s
entertainment industry.

MICHIGAN: In Michigan, we operate in Detroit, which is our market headquarters, as well as in the Detroit
metropolitan area, Ann Arbor, Battle Creek, Grand Rapids, Jackson, Kalamazoo, Lansing, Midland, and Muskegon.
We have maintained a continuous presence in Michigan since 1849, and continue to hold the second largest
deposit market share in the state, based on the latest FDIC deposit market share survey.

The Michigan economy continues to improve, buoyed by a strengthening manufacturing sector. U.S. auto sales
remain strong and the auto industry is in the midst of an exciting surge in new technologies, including the
innovation of state-of-the-art “smart car” driving systems. Michigan’s leading academic institutions are playing a
key role in developing these new technologies and incubating new business opportunities.

Our Three Strategic Lines of Business

In addition to our diverse footprint, growth is driven by our three strategic lines of business. Our model continues
to be weighted toward commercial banking through our Business Bank and complemented by the Retail Bank and
Wealth Management.

Within the Business Bank, Middle Market Banking remains our "bread and butter." It is where we have a
competitive advantage due to the depth and breadth of our expertise in this area. As part of our GEAR Up
initiative, we are taking steps to nationalize our middle market sales process. We are doing this by leveraging our
best practices and conducting business in a consistent manner throughout our enterprise. Our focus is on sales
enablement, organizational consistency, operational efficiency and talent management. Nationalizing our middle
market sales process will be an important initiative for us throughout 2017. And it is expected to result in
improved productivities, revenue generation and reduced expenses.

In May, Comerica was honored to be selected by the U.S. Treasury to be their Financial Agent providing merchant
card services, also known as Card Acquiring Services. With a five year contract, this business includes
approximately 7,000 merchant accounts, representing a multitude of government agencies, and an estimated $12
billion in annual payments volume. This expands our relationship with the U.S. Treasury, which already included
DirectExpress®, the program that provides Social Security payments via a pre-paid card, and myRA®, a savings
option for those who do not have access to a retirement savings plan at work.

Our Retail Bank continues to focus on ensuring we have the products, services and locations to meet customer
needs. In addition to strategically repositioning our banking center network through consolidations and
relocations, we completed more than two dozen interior refurbishments in 2016, which included transitions to
new design concepts and teller cash recyclers to improve efficiency.

We also successfully deployed transformational technologies at our Greenville banking center in Dallas, building
upon the successful deployment of these technologies at banking centers in Michigan and California.
Approximately 90 percent of transactions at the Greenville banking center are processed via the ATMs and
BankerConnect, our interactive teller-like machine. In addition, we introduced Comerica-branded ATMs at the
highly-trafficked Detroit Metropolitan Airport.

Also within the Retail Bank, we made Web Banking and Bill Pay upgrades, including the launch of Web Banking
Combined View, which allows our Web Banking customers to combine accounts with different taxpayer
identification numbers under one Web Banking ID, fulfilling a significant customer request. Furthermore, we
launched a web-based Comerica Insurance Services platform that enables customers to compare shop and buy a
variety of insurance products from multiple providers.

Small Business successes in 2016 included the integration of a new centralized underwriting center that supports
relationships up to $1.5 million in exposure. This contributed to improved speed-to-market for these types of
loans.

Wealth Management enables us to bring private banking, investment management and fiduciary services to our
Business Bank and Retail Bank clients. In large part due to our GEAR Up initiative, Wealth Management made
notable progress in growing loans and fee income, while controlling expenses, and managing risk appropriately. In
2017, we will launch the Wealth Productivity Transformation initiative, which includes the implementation of a
relationship management tool that we believe will enable our colleagues to drive market share and better serve
our clients. Wealth Management also expects to leverage technology to increase productivity, increase share of
wallet, and reduce time to close.

Well Positioned for Rising Rates

The Federal Reserve increased its benchmark rate 25 basis points in December 2016, marking only the second
change it has made to the short-term benchmark rate in eight years. As I previously mentioned, our 2016 financial
results benefited meaningfully from the December 2015 rate increase. Comerica's business model continues to be
well positioned for a rising rate environment.

Our balance sheet is sensitive to movement in interest rates, since the majority of our revenue is derived from the
interest we receive on loans we provide to our clients. Our loan portfolio represents over two-thirds of our total
assets as of December 31, 2016, and over 90 percent of our loans are floating rate. Therefore, as rates rise, our
portfolio reprices quickly. In addition, more than 50 percent of our deposits are noninterest-bearing, and, as such,
are less impacted by movement in rates. They also provide us a source of low-cost funding as loan growth
continues.

Energy Portfolio Weathering the Cycle

At year-end 2016, our energy loans had declined $820 million, or 27 percent, from one year ago, bringing our
Energy line of business to less than five percent of our total loans. Energy Services, which has been most
significantly impacted this cycle, represented less than one percent of our total loan portfolio. The performance of
our Energy portfolio has improved. While oil prices have been relatively stable, we continue to be cautious and
believe we are properly reserved with our loan loss reserve allocation at over seven percent of Energy loans as of
December 31, 2016. We remain committed to the energy sector and believe that in cycles such as the current one,
we can further cement our relationship with our clients.

Recent Additions Enhance Strong Board

Our board appointed two new independent directors in 2016: Michael Van de Ven, who is the chief operating
officer of Southwest Airlines, and Mike Collins, who had a distinguished 37-year career at the Federal Reserve Bank
of Philadelphia. We have a strong and diverse board with a good mix of industry, financial and leadership
backgrounds. Given the regulated nature of our industry as well as its cyclicality, we believe it is important to have
long-tenured directors with a deep understanding of our business and environment. However, we also recognize
the importance of bringing fresh perspectives.

Investments in Cybersecurity Continue

The cybersecurity threat environment is intensifying and Comerica's defenses are ready. Over the past several
years, Comerica has met this escalating environment with significant investments in its cybersecurity defensive
posture, building a robust program with advanced identification, protection, detection, response and recovery
capabilities. We have established a cybersecurity capability that leverages industry standard frameworks and
targeted regulatory guidance to provide wide coverage, which we evaluate regularly through independent
assessments. Our security operations center and intelligence capabilities are monitoring our systems 24/7,
constantly adjusting our defenses to the changing threat environment.

Opportunities for Regulatory Relief

The national election is bringing change to Washington, D.C. and with it, optimism for regulatory relief for banks,
particularly those of our size. It now appears to be a legislative priority to reduce complex and costly regulations
that burden banks and impact the flow of credit to businesses. We believe there is potential for revision or
elimination of certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act that could
benefit Comerica and the industry as a whole. This includes changes to the definition of a systemically important
financial institution (SIFI) from the current $50 billion and above in assets to either a higher asset threshold or a
metrics-based formula to determine a firm's true complexity and risk profile. We believe a positive change to the
SIFI designation would be a major step toward the kind of regulatory relief that would potentially spur increased
lending to businesses, reduce compliance expenses, and allow us to manage capital and liquidity to meet our
needs in a more prudent manner.

Comerica continued its commitment to the communities in which we operate in 2016. Comerica contributed more
than $8 million to not-for-profit organizations in the markets we serve, and, in addition, our employees raised
nearly $1.7 million for the United Way and Black United Fund. Our team also donated their personal time and
talents - about $1.3 million worth in volunteer hours - to make a positive difference in our local communities.

Some of the recognition we received for our efforts included the prestigious Corporate Social Responsibility Award
from the Financial Services Roundtable. In addition, Comerica was named as one of the 50 most community-minded
companies in the nation as part of the Civic 50, an initiative of Points of Light, the world's largest
organization dedicated to volunteer service.

Our community “Shred Day” events continue to serve as the largest, most visible and most successful brand
awareness, public education, colleague engagement, and community service campaigns that we host. Working
with event partner Iron Mountain at shred-day events in Dallas, Houston, Phoenix and Detroit, we securely
destroyed and recycled more than 800,000 pounds of paper in 2016, while gathering donations for local food
banks. These signature events continue to provide a triple bottom line: helping reduce fraud and identity theft,
freeing up hundreds of tons of space in local landfills, and raising awareness of hunger in our communities.

We marked the fifth year of the Comerica Hatch Detroit Contest by more than doubling our commitment. In
addition to providing the grand prize for the winning idea for a new retail business, we invested funds to help
launch even more small businesses in the city. Fifteen new businesses are now open, thanks to the contest's
success. We sponsored a similar contest in Dallas with the Dallas Entrepreneur Center and Tech Wildcatters. These
contests offer us an opportunity to advance the aspirations of entrepreneurs in our markets.

Diversity is an important core value at Comerica. We support 39 diversity-focused teams within the bank that
promote employee engagement, business outreach, and diversity awareness and learning among colleagues.
Comerica's focus on diversity has been favorably recognized, as we earned a third consecutive perfect 100 rating
on the Human Rights Campaign Foundation's 2017 Corporate Equality Index, a national benchmarking survey and
report on corporate policies and practices related to LGBT workplace equality.

Black Enterprise magazine placed Comerica on its 2016 “40 Best Companies for Diversity” list. Comerica also
ranked No. 2 on the DiversityInc 2016 Top 10 Regional Companies for Diversity. In addition, we were named to LATINO magazine’s 2016 “LATINO 100” list, the fourth annual listing of the top 100 companies providing the most
opportunities for Latinos in such areas as education, hiring, workforce diversity, minority business development,
governance and philanthropy.

We also ranked among 2016's "Best Places for Women and Diverse Managers to Work" by Diversity MBA, which is
a national leadership organization targeting leadership and talent management among professionals, managers
and executives. In addition, Comerica was named among the "Top 25 Companies for Diversity in Texas" by the
National Diversity Council. The award is based on women and minority representation in executive leadership and
on boards of directors.

We continued to expand our financial education efforts throughout our footprint in 2016, with some impressive
results. The Comerica Money $ense program, which has been incorporated into the classrooms of 41 elementary
schools throughout Maricopa, Palm Beach and Broward counties in Florida, is a web-based financial education
program designed by leading technology company, EverFi. During the 2015-2016 school year, more than 2,100
students were served by the Comerica-funded program, with more than 6,000 learning modules completed to
help predominantly low- and moderate-income students learn how to make wise financial decisions.

Comerica recognizes the business value created through sustainability and that’s why it is embedded in our core
values. We continued our progress on reducing our environmental footprint in line with Comerica’s 2020
Environmental Sustainability Goals and remain ahead of pace on our efforts to reduce greenhouse gas emissions,
water consumption, and paper use by 2020. In addition, we exceeded our goal of reducing waste sent to the
landfill four years ahead of schedule by achieving a 24.1 percent reduction compared to our goal of 20 percent.
Also, Comerica continues to support a green economy with nearly $900 million of environmentally beneficial loans
and commitments to companies in 13 different categories.

In 2016, we were once again recognized for our climate change management strategy and emissions reduction
efforts through CDP (formerly known as the Carbon Disclosure Project), receiving an “A-“ rating, among the highest
scores in the U.S. financial services industry. Our work on supply chain sustainability earned Comerica its third
consecutive Green Supply Chain Award from Supply & Demand Chain Executive magazine, and we were pleased to
be listed on the FTSE4Good index series for the 8th consecutive year.

Positioned for Future Growth

In closing, 2016 was a pivotal year with the development and implementation of our enterprise-wide GEAR Up
initiative. We have made significant progress in executing the expense savings and are fully committed to
delivering on the efficiency and revenue opportunities to further enhance our profitability and shareholder value.
We also benefited meaningfully from increased interest rates and our overall credit metrics remained strong as we
continued to navigate the energy cycle. In addition, there has been much discussion in Washington, D.C. about
plans to reduce taxes, provide regulatory relief and fiscal stimulus to drive economic growth. While there is no
certainty as to what changes may prevail, we believe our customers and Comerica should benefit if changes are
made. We believe we are well positioned for the future as our geographic footprint is well situated and our
relationship banking strategy can drive superior growth of loans, deposits and fee income over time.

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ý No o

Indicate by check mark if
registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ý No o

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ý

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.

Large
accelerated

filer ý

Accelerated

filer o

Non-accelerated
filer o

(Do not
check if a smaller

reporting
company)

Smaller
reporting

company o

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý

At June 30,
2016 (the last
business day of the registrant’s most recently completed second fiscal quarter),
the registrant’s common stock, $5 par value, held by non-affiliates
had an aggregate market value of approximately $7.0
billion based on the
closing price on the New York Stock Exchange on that date of $41.13 per share. For purposes of this
Form 10-K only, it has been assumed that all common shares Comerica’s Trust
Department holds for Comerica’s employee plans, and all common shares the
registrant’s directors and executive officers hold, are shares held by
affiliates.

At February 10,
2017, the registrant
had outstanding 175,858,751
shares of its common stock, $5 par value.

Documents
Incorporated by Reference:

Part III:

Items 10-14—Proxy Statement
for the Annual Meeting of Shareholders to be held April 25,
2017.

Comerica Incorporated
(“Comerica”) is a financial services company, incorporated under the laws of the
State of Delaware, and headquartered in Dallas, Texas. Based on total assets as
reported in the most recently filed Consolidated Financial Statements for Bank
Holding Companies (FR Y-9C), it was among the 25 largest commercial United
States (“U.S.”) financial holding companies. Comerica was formed in 1973 to
acquire the outstanding common stock of Comerica Bank, which at such time was a
Michigan banking corporation and one of Michigan's oldest banks (formerly
Comerica Bank-Detroit). On October 31, 2007, Comerica Bank, a Michigan
banking corporation, was merged with and into Comerica Bank, a Texas banking
association (“Comerica Bank”). As of December 31,
2016, Comerica owned
directly or indirectly all the outstanding common stock of 2 active banking and 33 non-banking subsidiaries. At
December 31,
2016, Comerica had
total assets of approximately $73.0
billion, total
deposits of approximately $59.0
billion, total loans
(net of unearned income) of approximately $49.1
billion and
shareholders’ equity of approximately $7.8
billion.

Business
Segments

Comerica has strategically
aligned its operations into three major business segments: the Business Bank,
the Retail Bank, and Wealth Management. In addition to the three major
business segments, Finance is also reported as a segment. We provide information
about our business segments and the principal products and services provided by
these segments in Note 23 on pages F-102 through F-105 of the Notes to
Consolidated Financial Statements located in the Financial Section of this
report.

Comerica operates in three
primary geographic markets - Texas, California, and Michigan, as well as in
Arizona and Florida, with select businesses operating in several other states,
and in Canada and Mexico. We provide information about our market segments in
Note 23 on pages F-102 through F-105 of the Notes to Consolidated
Financial Statements located in the Financial Section of this report.

Activities with customers
domiciled outside the U.S., in total or with any individual country, are not
significant. We provide information on risks attendant to foreign operations:
(1) under the caption “Concentration of Credit Risk” on page F-29 of the
Financial Section of this report; and (2) under the caption "International
Exposure" on pages F-31 through F-32 of the Financial Section of this
report.

We provide information about the
net interest income and noninterest income we received from our various classes
of products and services: (1) under the caption, “Analysis of Net Interest
Income” on page F-6 of the Financial Section of this report; (2) under
the caption “Net Interest Income” on pages F-7 through F-8 of the Financial
Section of this report; and (3) under the caption “Noninterest Income” on
pages F-8 through F-9 of the Financial Section of this report.

COMPETITION

The financial services business
is highly competitive. Comerica and its subsidiaries mainly compete in their
three primary geographic markets of Texas, California and Michigan, as well as
in the states of Arizona and Florida. They also compete in broader, national
geographic markets, as well as markets in Mexico and Canada. They are subject to
competition with respect to various products and services, including, without
limitation, loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange
management services, loan syndication services, consumer lending, consumer
deposit gathering, mortgage loan origination, consumer products, fiduciary
services, private banking, retirement services, investment management and
advisory services, investment banking services, brokerage services, the sale of
annuity products, and the sale of life, disability and long-term care insurance
products.

Comerica competes in terms of
products and pricing with large national and regional financial institutions and
with smaller financial institutions. Some of Comerica's larger competitors,
including certain nationwide banks that have a significant presence in
Comerica's market area, may make available to their customers a broader array of
product, pricing and structure alternatives and, due to their asset size, may
more easily absorb credit losses in a larger overall portfolio. Some of
Comerica's competitors (larger or smaller) may have more liberal lending
policies and processes. Further, Comerica's banking competitors may be subject
to a significantly different or reduced degree of regulation due to their asset
size or types of products offered. They may also have the ability to more
efficiently utilize resources to comply with regulations or may be able to more
effectively absorb the costs of regulations into their existing cost structure.
Comerica believes that the level of competition in all geographic markets will
continue to increase in the future.

In addition to banks, Comerica's
banking subsidiaries also face competition from other financial intermediaries,
including savings and loan associations, consumer finance companies, leasing
companies, venture capital funds, credit unions, investment banks, insurance
companies and securities firms. Competition among providers of financial
products and services continues to increase, with consumers having the
opportunity to select from a growing variety of traditional and nontraditional
alternatives. The ability of non-banking financial institutions to provide
services previously limited to commercial banks has intensified

competition. Because non-banking
financial institutions are not subject to many of the same regulatory
restrictions as banks and bank holding companies, they can often operate with
greater flexibility and lower cost structures.

In addition, the industry
continues to consolidate, which affects competition by eliminating some regional
and local institutions, while strengthening the franchises of
acquirers.

SUPERVISION
AND REGULATION

Banks, bank holding companies,
and financial institutions are highly regulated at both the state and federal
level. Comerica is subject to supervision and regulation at the federal level by
the Board of Governors of the Federal Reserve System (“FRB”) under the Bank
Holding Company Act of 1956, as amended. The Gramm-Leach-Bliley Act expanded the
activities in which a bank holding company registered as a financial holding
company can engage. The conditions to be a financial holding company include,
among others, the requirement that each depository institution subsidiary of the
holding company be well capitalized and well managed. Effective July 2011, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
also requires the well capitalized and well managed standards to be met at the
financial holding company level. Comerica became a financial holding company in
2000. As a financial holding company, Comerica may affiliate with securities
firms and insurance companies, and engage in activities that are financial in
nature. Activities that are “financial in nature” include, but are not limited
to: securities underwriting; securities dealing and market making; sponsoring
mutual funds and investment companies (subject to regulatory requirements,
including restrictions set forth in the Volcker Rule, described under the
heading "The Dodd-Frank Wall Street Reform and Consumer Protection Act and
Recent Legislative and Regulatory Developments"
below); insurance
underwriting and agency; merchant banking; and activities that the FRB has
determined to be financial in nature or incidental or complementary to a
financial activity, provided that it does not pose a substantial risk to the
safety or soundness of the depository institution or the financial system
generally. A bank holding company that is not also a financial holding company
is limited to engaging in banking and other activities previously determined by
the FRB to be closely related to banking.

Comerica Bank is chartered by the
State of Texas and at the state level is supervised and regulated by the Texas
Department of Banking under the Texas Finance Code. Comerica Bank has elected to
be a member of the Federal Reserve System under the Federal Reserve Act and,
consequently, is supervised and regulated by the Federal Reserve Bank of Dallas.
Comerica Bank & Trust, National Association is chartered under federal
law and is subject to supervision and regulation by the Office of the
Comptroller of the Currency (“OCC”) under the National Bank Act. Comerica
Bank & Trust, National Association, by virtue of being a national bank,
is also a member of the Federal Reserve System. The deposits of Comerica Bank
and Comerica Bank & Trust, National Association are insured by the
Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) to
the extent provided by law. Certain transactions executed by Comerica Bank are
also subject to regulation by the U.S. Commodity Futures Trading Commission. In
Canada, Comerica Bank is supervised by the Office of the Superintendent of
Financial Institutions and in Mexico, by the Banco de México.

The FRB supervises non-banking
activities conducted by companies directly and indirectly owned by Comerica. In
addition, Comerica's non-banking subsidiaries are subject to supervision and
regulation by various state, federal and self-regulatory agencies, including,
but not limited to, the Financial Industry Regulatory Authority, Inc. (in the
case of Comerica Securities, Inc.), the Department of Insurance and
Financial Services of the State of Michigan (in the case of Comerica Insurance
Services, Inc.), the Department of Licensing and Regulatory Affairs (in the
case of Comerica Securities, Inc.) and the Securities and Exchange Commission
(“SEC”) (in the case of Comerica Securities, Inc. and World Asset
Management, Inc.).

Described below are material
elements of selected laws and regulations applicable to Comerica and its
subsidiaries. The descriptions are not intended to be complete and are qualified
in their entirety by reference to the full text of the statutes and regulations
described. Changes in applicable law or regulation, and in their application by
regulatory agencies, cannot be predicted, but they may have a material effect on
the business of Comerica and its subsidiaries.

Requirements
for Approval of Acquisitions and Activities

In most cases, no FRB approval is
required for Comerica to acquire a company engaged in activities that are
financial in nature or incidental to activities that are financial in nature, as
determined by the FRB. However, Federal and state laws impose notice and
approval requirements for mergers and acquisitions of other depository
institutions or bank holding companies. Prior approval is required before
Comerica may acquire the beneficial ownership or control of more than 5% of the
voting shares or substantially all of the assets of a bank holding company
(including a financial holding company) or a bank.

The Community Reinvestment Act of
1977 (“CRA”) requires U.S. banks to help serve the credit needs of their
communities. Comerica Bank's current rating under the “CRA” is “satisfactory”.
If any subsidiary bank of Comerica were to receive a rating under the CRA of
less than “satisfactory,” Comerica would be prohibited from engaging in certain
activities.

In addition, Comerica, Comerica
Bank and Comerica Bank & Trust, National Association, are each “well
capitalized” and “well managed” under FRB standards. If any subsidiary bank of
Comerica were to cease being “well capitalized” or “well managed” under
applicable regulatory standards, the FRB could place limitations on Comerica's
ability to conduct the broader financial activities permissible for financial
holding companies or impose limitations or conditions on the conduct or
activities of Comerica or its affiliates. If the deficiencies persisted, the FRB
could order Comerica to divest any subsidiary bank or to cease engaging in any
activities permissible for financial holding companies that are not permissible
for bank holding companies, or Comerica could elect to conform its non-banking
activities to those permissible for a bank holding company that is not also a
financial holding company.

Further, the effectiveness of
Comerica and its subsidiaries in complying with anti-money laundering
regulations (discussed below) is also taken into account by the FRB when
considering applications for approval of acquisitions.

Transactions
with Affiliates

Various governmental
requirements, including Sections 23A and 23B of the Federal Reserve Act and the
FRB's Regulation W, limit borrowings by Comerica and its nonbank subsidiaries
from its affiliate insured depository institutions, and also limit various other
transactions between Comerica and its nonbank subsidiaries, on the one hand, and
Comerica's affiliate insured depository institutions, on the other. For example,
Section 23A of the Federal Reserve Act limits the aggregate outstanding
amount of any insured depository institution's loans and other “covered
transactions” with any particular nonbank affiliate to no more than 10% of the
institution's total capital and limits the aggregate outstanding amount of any
insured depository institution's covered transactions with all of its nonbank
affiliates to no more than 20% of its total capital. “Covered transactions” are
defined by statute to include a loan or extension of credit, as well as a
purchase of securities issued by an affiliate, a purchase of assets (unless
otherwise exempted by the FRB) from the affiliate, the acceptance of securities
issued by the affiliate as collateral for a loan, and the issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.
Section 23A of the Federal Reserve Act also generally requires that an
insured depository institution's loans to its nonbank affiliates be, at a
minimum, 100% secured, and Section 23B of the Federal Reserve Act generally
requires that an insured depository institution's transactions with its nonbank
affiliates be on terms and under circumstances that are substantially the same
or at least as favorable as those prevailing for comparable transactions with
nonaffiliates. The Dodd-Frank Act applied the 10% of capital limit on covered
transactions to financial subsidiaries and amended the definition of “covered
transaction” to include (i) securities borrowing or lending transactions with an
affiliate, and (ii) all derivatives transactions with an affiliate, to the
extent that either causes a bank or its affiliate to have credit exposure to the
securities borrowing/lending or derivative counterparty.

Privacy

The privacy provisions of the
Gramm-Leach-Bliley Act generally prohibit financial institutions, including
Comerica, from disclosing nonpublic personal financial information of consumer
customers to third parties for certain purposes (primarily marketing) unless
customers have the opportunity to “opt out” of the disclosure. The Fair Credit
Reporting Act restricts information sharing among affiliates for marketing
purposes.

Anti-Money
Laundering Regulations

The
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001 and its
implementing regulations substantially broadened the scope of U.S. anti-money
laundering laws and regulations by requiring insured depository institutions,
broker-dealers, and certain other financial institutions to have policies,
procedures, and controls to detect, prevent, and report money laundering and
terrorist financing. The USA PATRIOT Act and its regulations also provide for
information sharing, subject to conditions, between federal law enforcement
agencies and financial institutions, as well as among financial institutions,
for counter-terrorism purposes. Federal banking regulators are required, when
reviewing bank holding company acquisition and bank merger applications, to take
into account the effectiveness of the anti-money laundering activities of the
applicants. To comply with these obligations, Comerica and its various operating
units have implemented appropriate internal practices, procedures, and
controls.

Interstate
Banking and Branching

The Interstate Banking and
Branching Efficiency Act (the “Interstate Act”), as amended by the Dodd-Frank
Act, permits a bank holding company, with FRB approval, to acquire banking
institutions located in states other than the bank holding company's home state
without regard to whether the transaction is prohibited under state law, but
subject to any state requirement that the bank has been organized and operating
for a minimum period of time, not to exceed five years, and the requirement that
the bank holding company, prior to and following the proposed acquisition,
control no more than 10% of the total amount of deposits of insured depository
institutions in the U.S. and no more than 30% of such deposits in that state (or
such amount as established by state law if such amount is lower than 30%). The
Interstate Act, as amended, also authorizes banks to operate branch offices
outside their home states by merging with out-of-state banks, purchasing
branches in other states and by establishing de novo branches in other states,
subject to various conditions. In the case of purchasing branches in a state in
which it does not already have banking operations, the “host” state must have
“opted-in” to the Interstate Act by enacting a law permitting such branch
purchases. The

Dodd-Frank Act expanded the de
novo interstate branching authority of banks beyond what had been permitted
under the Interstate Act by eliminating the requirement that a state expressly
“opt-in” to de novo branching, in favor of a rule that de novo interstate
branching is permissible if under the law of the state in which the branch is to
be located, a state bank chartered by that state would be permitted to establish
the branch. The Dodd-Frank Act also requires that a bank holding company or bank
be well capitalized and well managed (rather than simply adequately capitalized
and adequately managed) in order to take advantage of these interstate banking
and branching provisions.

Comerica has consolidated the
majority of its banking business into one bank, Comerica Bank, with banking
centers in Texas, Arizona, California, Florida and Michigan, as well as
Canada.

Dividends

Comerica is a legal entity
separate and distinct from its banking and other subsidiaries. Most of
Comerica's revenues result from dividends its bank subsidiaries pay it. There
are statutory and regulatory requirements applicable to the payment of dividends
by subsidiary banks to Comerica, as well as by Comerica to its shareholders.
Certain, but not all, of these requirements are discussed below.

Comerica Bank and Comerica
Bank & Trust, National Association are required by federal law to
obtain the prior approval of the FRB and/or the OCC, as the case may be, for the
declaration and payment of dividends, if the total of all dividends declared by
the board of directors of such bank in any calendar year will exceed the total
of (i) such bank's retained net income (as defined and interpreted by
regulation) for that year plus (ii) the retained net income (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus or to fund the retirement of preferred stock. At January 1,
2017, Comerica's subsidiary banks
could declare aggregate dividends of approximately $142
million from
retained net profits of the preceding two years. Comerica's subsidiary banks
declared dividends of $545
million in
2016, $437
million in
2015 and $380
million in
2014.

Further, federal regulatory
agencies can prohibit a banking institution or bank holding company from
engaging in unsafe and unsound banking practices and could prohibit the payment
of dividends under circumstances in which such payment could be deemed an unsafe
and unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act (“FDICIA”), “prompt corrective action” regime discussed below,
which applies to each of Comerica Bank and Comerica Bank & Trust, National
Association, a subject bank is specifically prohibited from paying dividends to
its parent company if payment would result in the bank becoming
“undercapitalized.” In addition, Comerica Bank is also subject to limitations
under Texas state law regarding the amount of earnings that may be paid out as
dividends to its parent company, and requiring prior approval for payments of
dividends that exceed certain levels.

Additionally, the payment of
dividends by Comerica to its shareholders is subject to the non-objection of the
FRB pursuant to the Comprehensive Capital Analysis and Review (CCAR) program.
For more information, please see “The Dodd-Frank Wall Street Reform and Consumer
Protection Act and Recent Legislative and Regulatory Developments” in this
section.

Source of
Strength and Cross-Guarantee Requirements

Federal law and FRB regulations
require that bank holding companies serve as a source of strength to each
subsidiary bank and commit resources to support each subsidiary bank. This
support may be required at times when a bank holding company may not be able to
provide such support without adversely affecting its ability to meet other
obligations. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered or anticipated by the
FDIC (either as a result of the failure of a banking subsidiary or related to
FDIC assistance provided to such a subsidiary in danger of failure), the other
banking subsidiaries may be assessed for the FDIC's loss, subject to certain
exceptions.

Federal
Deposit Insurance Corporation Improvement Act

FDICIA requires, among other
things, the federal banking agencies to take “prompt corrective action” in
respect of depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized”
and “critically undercapitalized.” A depository institution's capital tier will
depend upon where its capital levels are in relation to various relevant capital
measures, which, among others, include a Tier 1 and total risk-based
capital measure and a leverage ratio capital measure.

Regulations establishing the
specific capital tiers provide that, for a depository institution to be well
capitalized, it must have a total risk-based capital ratio of at least 10% and a
Tier 1 risk-based capital ratio of at least 8%, a common equity Tier 1
risk-based capital measure of at least 6.5%, a Tier 1 leverage ratio of at
least 5% and not be subject to any specific capital order or directive. For an
institution to be adequately capitalized, it must have a total risk-based
capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least
6%, a common equity Tier 1 risk-based capital measure of at least 4.5% and a
Tier 1 leverage ratio of at least 4%. Under certain circumstances, the
appropriate banking agency may treat a well capitalized, adequately capitalized
or undercapitalized institution as if the institution were in the next lower
capital category.

As of December 31,
2016, Comerica and
its banking subsidiaries exceeded the ratios required for an institution to be
considered “well capitalized” under these regulations.

FDICIA generally prohibits a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
depository institution would thereafter be undercapitalized. Undercapitalized
depository institutions are subject to limitations on growth and certain
activities and are required to submit an acceptable capital restoration plan.
The federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the institution's
parent holding company must guarantee for a specific time period that the
institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company under the guaranty is limited to the
lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became undercapitalized, or (ii) the amount that is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit or implement an acceptable plan, it is treated as if
it is significantly undercapitalized.

Significantly undercapitalized
depository institutions are subject to a number of requirements and
restrictions. Specifically, such a depository institution may be required to do
one or more of the following, among other things: sell sufficient voting stock
to become adequately capitalized, reduce the interest rates it pays on deposits,
reduce its rate of asset growth, dismiss certain senior executive officers or
directors, or stop accepting deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator or such other action as the FDIC and the applicable federal banking
agency shall determine appropriate.

As an additional means to
identify problems in the financial management of depository institutions, FDICIA
requires federal bank regulatory agencies to establish certain non-capital
safety and soundness standards for institutions any such agency supervises. The
standards relate generally to, among others, earnings, liquidity, operations and
management, asset quality, various risk and management exposures (e.g., credit,
operational, market, interest rate, etc.) and executive compensation. The
agencies are authorized to take action against institutions that fail to meet
such standards.

FDICIA also contains a variety of
other provisions that may affect the operations of depository institutions
including reporting requirements, regulatory standards for real estate lending,
“truth in savings” provisions, the requirement that a depository institution
give 90 days prior notice to customers and regulatory authorities before
closing any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized or are
adequately capitalized and have not received a waiver from the
FDIC.

Capital
Requirements

Comerica and its bank
subsidiaries are subject to risk-based capital requirements and guidelines
imposed by the FRB and/or the OCC.

For this purpose, a depository
institution's or holding company's assets and certain specified off-balance
sheet commitments are assigned to various risk categories defined by the FRB,
each weighted differently based on the level of credit risk that is ascribed to
such assets or commitments, based on counterparty type and asset class. A
depository institution's or holding company's capital, in turn, is divided into
three tiers: Common Equity Tier 1 (“CET1”), additional Tier 1, and Tier 2. CET1
capital predominantly includes common shareholders’ equity, less certain
deductions for goodwill, intangible assets and deferred tax assets that arise
from net operating losses and tax credit carry-forwards, if any. Additional Tier
1 capital primarily includes any outstanding noncumulative perpetual preferred
stock and related surplus. Comerica has also made the election to permanently
exclude accumulated other comprehensive income related to debt securities, cash
flow hedges, and defined benefit postretirement plans from CET1 capital. Tier 2
capital primarily includes qualifying subordinated debt and qualifying allowance
for credit losses. Certain deductions and adjustments to CET1 capital, Tier 1
capital and Tier 2 capital are subject to phase-in through December 31, 2017.
Entities that engage in trading activities, whose trading activities exceed
specified levels, also are required to maintain capital for market risk. Market
risk includes changes in the market value of trading account, foreign exchange,
and commodity positions, whether resulting from broad market movements (such as
changes in the general level of interest rates, equity prices, foreign exchange
rates, or commodity prices) or from position specific factors. From time to
time, Comerica's trading activities may exceed specified regulatory levels, in
which case Comerica maintains additional capital for market risk as
required.

Comerica, like other bank holding
companies, currently is required to maintain CET1, Tier 1 (the sum of CET1
and additional Tier 1 capital) and “total capital” (the sum of Tier 1 and
Tier 2 capital) equal to at least 4.5%, 6% and 8% of its total
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit), respectively. In 2016, Comerica was also required to
maintain a minimum capital conservation buffer of 0.625% in order to avoid
restrictions on capital distributions and discretionary bonuses. The minimum
required capital conservation buffer gradually increases to 2.5% in 2019. At
December 31,
2016, Comerica met
all requirements, with CET1, Tier 1 and total capital equal to 11.09%,
11.09% and 13.27% of its total risk-weighted
assets, respectively, and a capital conservation buffer of 5.09% of its total risk-weighted
assets.

Comerica is also required to
maintain a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted
total assets) of 4%. Comerica's leverage ratio of 10.18% at December 31,
2016 reflects the
nature of Comerica's balance sheet and demonstrates a commitment to capital
adequacy. At December 31,
2016, Comerica Bank
had CET1, Tier 1 and total capital equal to 10.51%,

10.51%
and 12.40%
of its total risk-weighted assets, respectively, a capital conservation buffer
of 4.40% of its total risk-weighted
assets, and a leverage ratio of 9.65%.

Additional information on the
calculation of Comerica and its bank subsidiaries' CET1, Tier 1 capital, total
capital and risk-weighted assets is set forth in Note 20 of the Notes to Consolidated
Financial Statements located on pages F-99 through F-100of the Financial
Section of this report. Additional information on the timing and nature of the
Basel III capital requirements is set forth below, under "Basel III: Regulatory
Capital and Liquidity Regime."

FDIC
Insurance Assessments

The FDIC Deposit Insurance Fund
(“DIF”) provides insurance coverage for certain deposits. Comerica's subsidiary
banks are subject to FDIC deposit insurance assessments to maintain the DIF. The
FDIC imposes a risk-based deposit premium assessment system, which was amended
pursuant to the Federal Deposit Insurance Reform Act of 2005 and further amended
by the Dodd-Frank Act. The Dodd-Frank Act also increased the DIF's minimum
reserve ratio and permanently increased general deposit insurance coverage from
$100,000 to $250,000. Under the risk-based deposit premium assessment system,
the assessment rates for an insured depository institution are determined by an
assessment rate calculator, which is based on a number of elements to measure
the risk each institution poses to the DIF. The assessment rate is applied to
total average assets less tangible equity. Under the current system, premiums
are assessed quarterly and could increase if, for example, criticized loans
and/or other higher risk assets increase or balance sheet liquidity decreases.
For 2016, Comerica’s FDIC insurance
expense totaled $54 million, including the surcharge described below.

Effective July 1, 2016, the FDIC
issued a final rule in order to implement section 334 of the Dodd-Frank Act
(§334), which requires the FDIC to (1) raise the minimum reserve ratio for the
DIF to 1.35 percent, from 1.15 percent, (2) assess premiums on banks to reach
the 1.35 percent goal by September 30, 2020, and (3) offset the effect of the
increase in the minimum reserve ratio on insured depository institutions with
assets of less than $10 billion. The final rule imposes a surcharge on large
banks, to be assessed over a period of eight quarters, as a means to implement
§334. Comerica is subject to the surcharge assessment. If this surcharge is
insufficient to increase the reserve ratio to 1.35 percent by December 31, 2018,
a one-time shortfall assessment will be imposed on institutions with total
consolidated assets of $10 billion or more on March 31, 2019. Management
currently estimates that, based on the final rule, FDIC expense will increase by
a total of approximately $20 million over the eight-quarter period that began
July 1, 2016.

Enforcement
Powers of Federal and State Banking Agencies

The FRB and other federal and
state banking agencies have broad enforcement powers, including, without
limitation, and as prescribed to each agency by applicable law, the power to
terminate deposit insurance, impose substantial fines and other civil penalties
and appoint a conservator or receiver. Failure to comply with applicable laws or
regulations could subject Comerica or its banking subsidiaries, as well as
officers and directors of these organizations, to administrative sanctions and
potentially substantial civil and criminal penalties.

The financial crisis led to
significant changes in the legislative and regulatory landscape of the financial
services industry, including the overhaul of that landscape with the passage of
the Dodd-Frank Act, which was signed into law on July 21, 2010. Provided
below is an overview of key elements of the Dodd-Frank Act relevant to Comerica,
as well as recent legislative and regulatory developments. The estimates of the
impact on Comerica discussed below are based on information currently available
and, if applicable, are subject to change until final rulemaking is
complete.

Incentive-Based
Compensation. In
June 2010, the FRB, OCC and FDIC issued comprehensive final guidance on
incentive compensation policies intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive risk-taking. The
guidance, which covers senior executives as well as other employees who, either
individually or as part of a group, have the ability to expose the banking
organization to material amounts of risk, is based upon the key principles that
a banking organization's incentive compensation arrangements (i) should provide
employees incentives that appropriately balance risk and financial results in a
manner that does not encourage employees to expose their organizations to
imprudent risk; (ii) should be compatible with effective controls and
risk-management; and (iii) should be supported by strong corporate governance,
including active and effective oversight by the organization's board of
directors. Banking organizations are expected to review regularly their
incentive compensation arrangements based on these three principles. Where there
are deficiencies in the incentive compensation arrangements, they should be
promptly addressed. Enforcement actions may be taken against a banking
organization if its incentive compensation arrangements, or related
risk-management control or governance processes, pose a risk to the
organization's safety and soundness, particularly if the organization is not
taking prompt and effective measures to correct the deficiencies. Comerica is
subject to this final guidance and, similar to other large banking
organizations, has been subject to a continuing review of incentive compensation
policies and practices by representatives of the FRB, the Federal Reserve Bank
of Dallas and the Texas Department of Banking since 2011. As part of that
review, Comerica has undertaken a thorough analysis of all the incentive
compensation programs throughout the organization, the

individuals covered by each plan
and the risks inherent in each plan’s design and implementation. Comerica has
determined that risks arising from employee compensation plans are not
reasonably likely to have a material adverse effect on Comerica. Further, it is
the Company’s intent to continue to evolve our processes going forward by
monitoring regulations and best practices for sound incentive
compensation.

In 2016, the FRB, OCC and several
other federal financial regulators revised and re-proposed rules to implement
Section 956 of the Dodd-Frank Act. The rules were first proposed in 2011.
Section 956 directed regulators to jointly prescribe regulations or
guidelines prohibiting incentive-based payment arrangements, or any feature of
any such arrangement, at covered financial institutions that encourage
inappropriate risks by providing excessive compensation or that could lead to a
material financial loss. This proposal supplements the final guidance issued by
the banking agencies in June 2010. Consistent with the Dodd-Frank Act, the
proposed rule would not apply to institutions with total consolidated assets of
less than $1 billion, and would impose heightened standards for institutions
with $50 billion or more in total consolidated assets, which includes Comerica.
For these larger institutions, the proposed rule would require the deferral of
at least 40 percent of incentive-based payments for designated executives and
significant risk-takers who individually have the ability to expose the
institution to possible losses that are substantial in relation to the
institution's size, capital or overall risk tolerance. Moreover, incentive-based
compensation of these individuals would be subject to potential clawback for
seven years following vesting. Further, the rule imposes enhanced risk
management controls and governance and internal policy and procedure
requirements with respect to incentive compensation. Comerica is monitoring the
development of this rule.

Basel
III: Regulatory Capital and Liquidity Regime.
In December 2010, the Basel Committee on Banking Supervision (the “Basel
Committee”) issued a framework for strengthening international capital and
liquidity regulation (“Basel III”). In July 2013, U.S. banking regulators issued
a final rule for the U.S. adoption of the Basel III regulatory capital
framework. Basel III includes a more stringent definition of capital and
introduces a new common equity Tier 1 ("CET1") capital requirement; sets forth
two comprehensive methodologies for calculating risk-weighted assets ("RWA"), a
standardized approach and an advanced approach; introduces two new capital
buffers, a conservation buffer and a countercyclical buffer (applicable to
advanced approach entities); establishes a new supplemental leverage ratio
(applicable to advanced approach entities); and sets out minimum capital ratios
and overall capital adequacy standards. As a banking organization subject to the
standardized approach, the rules were effective for Comerica on January 1, 2015.
Certain deductions and adjustments to regulatory capital (primarily related to
intangible assets and surplus Tier 2 capital minority interest) phase in and
will be fully implemented on January 1, 2018. The capital conservation buffer
phases in at 0.625 percent beginning on January 1, 2016 and ultimately increases
to 2.5 percent on January 1, 2019. Comerica is not subject to the
countercyclical buffer or the supplemental leverage ratio.

On September 3, 2014, U.S.
banking regulators adopted the Liquidity Coverage Ratio ("LCR") rule, which set
for U.S. banks the minimum liquidity measure established under the Basel III
liquidity framework. Under the final rule, Comerica is subject to a modified LCR
standard, which requires a financial institution to hold a minimum level of
high-quality, liquid assets ("HQLA") to fully cover modified net cash outflows
under a 30-day systematic liquidity stress scenario. The rule was effective for
Comerica on January 1, 2016. During the transition year, 2016, Comerica was
required to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and
thereafter, the minimum required LCR will be 100 percent. At each quarter-end in
2016, Comerica was in compliance with the fully phased-in LCR requirement, plus
a buffer.

In the second quarter 2016, U.S.
banking regulators issued a notice of proposed rulemaking (the proposed rule)
implementing a second quantitative liquidity requirement in the U.S. generally
consistent with the Net Stable Funding Ratio (NSFR) minimum liquidity measure
established under the Basel III liquidity framework. Under the proposed rule,
Comerica will be subject to a modified NSFR standard effective January 1, 2018,
which requires a financial institution to hold a minimum level of available
longer-term, stable sources of funding to fully cover a modified amount of
required longer-term stable funding, over a one-year period. Comerica does not
currently expect the proposed rule to have a material impact on its liquidity
needs.

Interchange
Fees. On July 20,
2011, the FRB published final rules (Regulation II) pursuant to the Dodd-Frank
Act establishing the maximum permissible interchange fee that an issuer may
receive for an electronic debit transaction as the sum of 21 cents per
transaction and 5 basis points multiplied by the value of the transaction and
prohibiting network exclusivity arrangements and routing restrictions. Comerica
is subject to the final rules.

Supervision
and Regulation Assessment.
Section 318 of the Dodd-Frank Act authorizes the federal banking agencies to
assess fees against bank holding companies with total consolidated assets in
excess of $50 billion equal to the expenses necessary or appropriate in order to
carry out their supervision and regulation of those companies. Comerica expensed
$1.9 million for 2016, which will be assessed in the first quarter 2017.

The
Volcker Rule. The
federal banking agencies and the SEC published approved joint final regulations
to implement the Volcker Rule on December 10, 2013. The Volcker Rule generally
prohibits banking entities from engaging in proprietary trading and from owning
and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The
final regulations adopt

a multi-faceted approach to
implementing the Volcker Rule prohibitions that relies on: (i) detailed
descriptions of prohibited and permitted activities; (ii) detailed compliance
requirements; and (iii) for banking entities with large volumes of trading
activity, detailed quantitative analysis and reporting obligations. In addition
to rules implementing the core prohibitions and exemptions (e.g. underwriting,
market-making related activities, risk-mitigating hedging and trading in certain
government obligations) of the Volcker Rule, the regulations also include two
appendices devoted to record-keeping and reporting requirements, including
numerous quantitative data reporting obligations for banking entities with
significant trading activities (Appendix A) and enhanced compliance requirements
for banking entities with significant trading or covered fund activities
(Appendix B). The final rule was effective April 1, 2014. The Volcker Rule
generally required full compliance with the new restrictions by July 21, 2015;
however, the FRB has extended the conformance period to July 21, 2017 for
covered funds that were in place prior to December 31, 2013. Comerica is
currently in compliance with the effective aspect of the Volcker Rule and
expects to meet the final requirements adopted by regulators within the
applicable regulatory timelines. Additional information on Comerica's portfolio
of indirect (through funds) private equity and venture capital investments is
set forth in Note 1 of the Notes to Consolidated
Financial Statements located on page F-52 of the Financial Section of this
report.

Annual
Capital Plans and Stress Tests.
Comerica is subject to the FRB’s annual Comprehensive Capital Analysis and
Review (CCAR) process, as well as the Dodd-Frank Act Stress Testing (DFAST)
requirements. As part of the CCAR process, the FRB undertakes a supervisory
assessment of the capital adequacy of bank holding companies (BHCs), including
Comerica, that have $50 billion or more in total consolidated assets. This
capital adequacy assessment is based on a review of a comprehensive capital plan
submitted by each participating BHC to the FRB that describes the company’s
planned capital actions during the nine quarter review period, as well as the
results of stress tests conducted by both the company and the FRB under
different hypothetical macro-economic scenarios, including a supervisory
baseline and an adverse and a severely adverse scenario provided by the FRB. The
FRB reviews both quantitative factors (such as projected capital ratios under a
hypothetical stress scenario) and qualitative factors (such as the strength of
the company's capital planning process). On January 30, 2017, the FRB issued a
final rule stating that going forward, large and noncomplex firms, such as
Comerica, would remain subject to a quantitative assessment in CCAR, but would
no longer be subject to the qualitative assessment as part of CCAR; instead, the
qualitative assessment would be conducted through the regular ongoing
supervisory review process.

After completing its review, the
FRB may object or not object to the company’s proposed capital actions, such as
plans to pay or increase common stock dividends, reinstate or increase common
equity repurchase programs, or issue or redeem preferred stock or other
regulatory capital instruments. In connection with the 2016 CCAR, Comerica
submitted its 2016 capital plan to the FRB on April 4, 2016; on June 23, 2016,
Comerica and the FRB released the revenue, loss and capital results from the
annual stress testing exercises and on June 29, 2016, Comerica announced that
the FRB had completed its CCAR 2016 capital plan review and did not object to
the capital plan or capital distributions contemplated in the plan for the
four-quarter period commencing in the third quarter 2016 and ending in the
second quarter 2017. Comerica plans to submit its CCAR 2017 capital plan to the
FRB, consistent with supervisory guidance (SR 15-19), in April 2017 and expects
to receive the results of the FRB's review of the plan in June 2017 and to
release its company-run stress tests results in June or July 2017.

FRB regulations also required
that Comerica and other large bank holding companies conduct a separate mid-year
stress test using financial data as of June 30th and three company-derived
macro-economic scenarios (base, adverse and severely adverse) and publish a
summary of the results under the severely adverse scenario. On October 20, 2016,
Comerica released the results of its company-run mid-year stress tests. Stress
test results are available in the Investor Relations section of Comerica's
website at investor.comerica.com, on the “Regulatory Disclosures” page under
"Financial Reports."

Enhanced
Prudential Requirements.
The Dodd-Frank Act created the Financial Stability Oversight Council (“FSOC”)
to coordinate efforts of the primary U.S. financial regulatory agencies in
establishing regulations to address financial stability concerns and to make
recommendations to the FRB as to enhanced prudential standards that must apply
to large, interconnected bank holding companies and nonbank financial companies
supervised by the FRB under the Dodd-Frank Act, including capital, leverage,
liquidity and risk management requirements.

On February 18, 2014, the FRB
issued its final regulations to implement the enhanced prudential and
supervisory requirements mandated by the Dodd-Frank Act. The final regulations
address enhanced risk-based capital and leverage requirements, enhanced
liquidity requirements, enhanced risk management and risk committee
requirements, single-counterparty credit limits, semiannual stress tests (as
described above under "Annual Capital Plans and Stress Tests"), and a
debt-to-equity limit for companies determined to pose a grave threat to
financial stability. They are intended to allow regulators to more effectively
supervise large bank holding companies and nonbank financial firms whose failure
could impact the stability of the US financial system, and generally build on
existing US and international regulatory guidance. The rule also takes a
multi-stage or phased approach to many of the requirements (such as the capital
and liquidity requirements). Most of these requirements apply to Comerica
because it has consolidated assets of more than $50 billion. Comerica has or
will implement all requirements of the new rules within regulatory
timelines.

Resolution
(Living Will) Plans.
Section 165(d) of the Dodd-Frank Act requires bank holding companies with total
consolidated assets of $50 billion or more (“covered companies”) to prepare and
submit to the federal banking agencies (e.g., FRB

and FDIC) a plan for their rapid
and orderly resolution under the U.S. Bankruptcy Code. Covered companies, such
as Comerica, with less than $100 billion in total nonbank assets were required
to submit their initial plans by December 31, 2013. In addition, Section 165(d)
requires FDIC-insured depository institutions (like Comerica Bank) with assets
of $50 billion or more to develop, maintain, and periodically submit plans
outlining how the FDIC would resolve it through the FDIC's resolution powers
under the Federal Deposit Insurance Act. The federal banking agencies have
issued rules to implement these requirements. In addition, those rules require
the filing of annual updates to the plans. Both Comerica and Comerica Bank filed
their respective initial and updated resolution plans by the required due dates,
and will submit their 2017 resolution plans prior to December 31, 2017.

Section
611 and Title VII of the Dodd-Frank Act.
Section 611 of the Dodd-Frank Act prohibits a state bank from engaging in
derivative transactions unless the lending limit laws of the state in which the
bank is chartered take into consideration exposure to derivatives. Section 611
does not provide how state lending limit laws must factor in derivatives. The
Texas Finance Commission has adopted an administrative rule meeting the
requirements of Section 611. Comerica Bank's policy is designed to comply with
the Texas rule. Accordingly, Comerica Bank may engage in derivative
transactions, as permitted by applicable law.

Title VII of the Dodd-Frank Act
establishes a comprehensive framework for over-the-counter (“OTC”) derivatives
transactions. The structure for derivatives set forth in the Dodd-Frank Act is
intended to promote, among other things, exchange trading and centralized
clearing of swaps and security-based swaps, as well as greater transparency in
the derivatives markets and enhanced monitoring of the entities that use these
markets. In this regard, the CFTC and SEC have issued several regulatory
proposals, some of which are now effective or will become effective in 2017.
Most of the requirements did not impact Comerica since the Bank does not meet
the definition of swap dealer nor is it a “major swap participant.”

On October 13, 2016, the CFTC
issued an Order setting the de
minimis threshold at
$8 billion through December 31, 2018 with respect to the de
minimis exception to
the swap dealer definition. In taking this action, the
de minimis threshold
will not decrease to $3 billion on December 31, 2017, as initially
proposed. At this time, Comerica will continue to track its dealing
activity.

The variation margin
requirements for non-centrally cleared swaps and security-based swaps are
effective for Comerica on March 31, 2017. The variation margin
requirements were issued for the purpose of ensuring safety and soundness of
swap trading in light of the risk to the financial system associated with
non-cleared swaps activity. Comerica is currently working toward meeting
compliance with the variation margin requirements.

Consumer
Finance Regulations.
The Dodd-Frank Act made several changes to consumer finance laws and
regulations. It contained provisions that have weakened the federal preemption
rules applicable for national banks and give state attorneys general the ability
to enforce federal consumer protection laws. Additionally, the Dodd-Frank Act
created the Consumer Financial Protection Bureau (“CFPB“), which has a broad
rule-making authority for a wide range of consumer protection laws that apply to
all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices, and possesses examination and
enforcement authority over all banks and savings institutions with more than
$10 billion in assets. In this regard, the CFPB has commenced issuing
several new rules to implement various provisions of the Dodd-Frank Act that
were specifically identified as being enforced by the CFPB, as well as those
specified for supervisory and enforcement authority for very large depository
institutions and non-depository (nonbank) entities. Comerica is subject to CFPB
foreign remittance rules and home mortgage lending rules, in addition to certain
other CFPB rules.

The foreign remittance rules fall
under Section 1073 of the Dodd-Frank Act. The CFPB issued new regulations
amending Regulation E, which implements the Electronic Fund Transfer Act,
effective October 28, 2013. The regulations were designed to provide protections
to consumers who transfer funds to recipients located in countries outside the
United States (customer foreign remittance transfers). In general, the
regulation requires remittance transfer providers, such as Comerica, to disclose
to a consumer the exchange rate, fees, and amount to be received by the
recipient when the consumer sends a remittance transfer. Although Comerica had
implemented the model disclosures provided in Appendix A to the final rule, on
September 18, 2014, the CFPB extended the compliance exception period for the
rule's new disclosure requirements to July 21, 2020.

On October 5, 2016, effective
October 1, 2017, the CFPB issued final regulations establishing new consumer
protections and disclosure requirements on prepaid accounts. The final rule’s
definition of prepaid accounts specifically includes payroll card accounts and
government benefit accounts. It also includes cards that are not linked to
a deposit account to conduct person-to- person (P2P) transfers. The
regulations include (i) the provision of either periodic statements or free
online account information access; (ii) new account error and unauthorized
transaction rights; (iii) new “Know Before You Choose” prepaid account
disclosures; (iv) public disclosure of account agreements for prepaid accounts
and (v) credit protection for linked credit accounts. Additionally, the
final rule regulates overdraft credit features that may be offered in
conjunction with prepaid accounts.

Comerica has positioned itself to
be in compliance with the new requirements.

Truth
in Lending Act (“TILA”) and Real Estate Settlement Procedures Act
(“RESPA”). In
November 2013, the CFPB issued a rule implementing new TILA RESPA Integrated
Disclosures (“TRID”) to replace the initial Truth-in-Lending disclosure and Good
Faith Estimate for most closed-end consumer mortgage loans. The effective date
was October 3, 2015. Significant

changes in TRID include: (1)
expansion of the scope of loans that require RESPA early disclosures, including
bridge loans, vacant land loans, and construction loans; (2) changes and
additions to “waiting period” requirements to close a loan; (3) reduced
tolerances for estimated fees and (4) the lender, rather than the closing agent,
is responsible for providing final disclosures. Although Comerica outsources
most of its consumer mortgage loans, consumer construction financing has been
suspended. This regulation has also resulted in a suspension of consumer bridge
loan financing. Such financing has not been a significant business for Comerica.

Home
Mortgage Disclosure Act (HMDA), Equal Credit Opportunity Act (ECOA) and Uniform
Residential Loan Application (URLA).
A revised and redesigned URLA was approved by the CFPB on September 23, 2016.
The official approval expands the Home Mortgage Disclosure Act information about
Ethnicity and Race that can be collected from January 1, 2017 through December
31, 2017. Regulation C, as amended by the final rule published in the Federal
Register at 80 FR 66127 on October 28, 2015 (2015 HMDA final rule), will require
financial institutions to permit applicants to self-identify using disaggregated
ethnic and racial categories beginning January 1, 2018 in conformance with the
2016 URLA. Most consumer-purpose transactions, including closed-end home-equity
loans, home-equity lines of credit and reverse mortgages, are subject to the
regulation. Most commercial-purpose transactions (i.e., loans or lines of credit
not for personal, family, or household purposes) are subject to the regulation
only if they are for the purpose of home purchase, home improvement, or
refinancing. The final rule excludes from coverage home improvement loans that
are not secured by a dwelling (i.e., home improvement loans that are unsecured
or that are secured by some other type of collateral) and all
agricultural-purpose loans and lines of credit. Comerica is monitoring and
implementing changes as required.

FDIC
Guidance on Brokered Deposits.
On January 5, 2015, the FDIC issued guidance in the form of “Frequently Asked
Questions” to promote consistency by insured depository institutions in
identifying, accepting, and reporting brokered deposits. On November 13,
2015, the FDIC issued proposed updates to the FAQs. All insured depository
institutions (including those that are well capitalized) must report brokered
deposits in their Consolidated Reports of Condition and Income (Call
Reports). Comerica has evaluated the impact of these FAQs, including the
proposed updates, to various business units throughout the organization. The
FAQs had only a nominal impact.

On October 31, 2016, the federal
agencies issued a Joint Notice of Proposed Rulemaking concerning the private
flood insurance rules with request for additional public comments due on January
6, 2017. Comerica will continue to monitor the development and implementation of
the private flood insurance rules.

Future
Legislation and Regulatory Measures

The environment in which
financial institutions have operated since the financial crisis, including
legislative and regulatory changes affecting capital, liquidity, supervision,
permissible activities, corporate governance and compensation, and changes in
fiscal policy, may have long-term effects on the business model and
profitability of financial institutions that cannot be foreseen. Further, it is
too soon for Comerica to predict what legislative or regulatory changes may
occur as a result of the recent change in the U.S. presidential administration,
or, if changes occur, the ultimate effect they would have upon the financial
condition or results of operations of Comerica.

UNDERWRITING
APPROACH

The loan portfolio is a primary
source of profitability and risk, so proper loan underwriting is critical to
Comerica's long-term financial success. Comerica extends credit to businesses,
individuals and public entities based on sound lending principles and consistent
with prudent banking practice. During the loan underwriting process, a
qualitative and quantitative analysis of potential credit facilities is
performed, and the credit risks associated with each relationship are evaluated.
Important factors considered as part of the underwriting process for new loans
and loan renewals include:

•

People: Including the
competence, integrity and succession planning of
customers.

•

Purpose: The legal, logical
and productive purposes of the credit
facility.

Comerica prices credit facilities
to reflect risk, the related costs and the expected return, while maintaining
competitiveness with other financial institutions. Loans with variable and fixed
rates are underwritten to achieve expected risk-adjusted returns on the credit
facilities and for the full relationship including the borrower's ability to
repay the principal and interest based on such rates.

Credit
Administration

Comerica maintains a Credit
Administration Department (“Credit Administration”) which is responsible for the
oversight and monitoring of our loan portfolio. Credit Administration assists
with underwriting by providing objective financial analysis, including an
assessment of the borrower's business model, balance sheet, cash flow and
collateral. Each borrower relationship is assigned an internal risk rating by
Credit Administration. Further, Credit Administration updates the assigned
internal risk rating for every borrower relationship as new information becomes
available, either as a result of periodic reviews of the credit quality or as a
result of a change in borrower performance. The goal of the internal risk rating
framework is to improve Comerica's risk management capability, including its
ability to identify and manage changes in the credit risk profile of its
portfolio, predict future losses and price the loans appropriately for
risk.

Credit
Policy

Comerica maintains a
comprehensive set of credit policies. Comerica's credit policies provide
individual relationship managers, as well as loan committees, approval
authorities based on our internal risk rating system and establish maximum
exposure limits based on risk ratings and Comerica's legal lending limit. Credit
Administration, in conjunction with the businesses units, monitors compliance
with the credit policies and modifies the existing policies as necessary. New or
modified policies/guidelines require approval by the Strategic Credit Committee,
chaired by Comerica's Chief Credit Officer and comprising senior credit, market
and risk management executives.

Commercial
Loan Portfolio

Commercial loans are underwritten
using a comprehensive analysis of the borrower's operations. The underwriting
process includes an analysis of some or all of the factors listed
below:

•

The borrower's business
model.

•

Periodic review of
financial statements including financial statements audited by an
independent certified public accountant when
appropriate.

•

The pro-forma financial
condition including financial
projections.

•

The borrower's sources and
uses of funds.

•

The borrower's debt service
capacity.

•

The guarantor's financial
strength.

•

A comprehensive review of
the quality and value of collateral, including independent third-party
appraisals of machinery and equipment and commercial real estate, as
appropriate, to determine the advance
rates.

•

Physical inspection of
collateral and audits of receivables, as
appropriate.

For additional information
specific to our Energy loan portfolio, please see the caption, “Energy Lending”
on pages F-30 through F-31 of the Financial Section of this
report.

Commercial
Real Estate (CRE) Loan Portfolio

Comerica's CRE loan portfolio
consists of real estate construction and commercial mortgage loans and includes
both loans to real estate developers and loans secured by owner-occupied real
estate. Comerica's CRE loan underwriting policies are consistent with the
approach described above and provide maximum loan-to-value ratios that limit the
size of a loan to a maximum percentage of the value of the real estate
collateral securing the loan. The loan-to-value percentage varies by the type of
collateral and is limited by advance rates established by our regulators. Our
loan-to-value limitations are, in certain cases, more restrictive than those
required by regulators and are influenced by other risk factors such as the
financial strength of the borrower or guarantor, the equity provided to the
project and the viability of the project itself. CRE loans generally require
cash equity. CRE loans are normally originated with full recourse or limited
recourse to all principals and owners. There are limitations to the size of a
single project loan and to the aggregate dollar exposure to a single
guarantor.

Comerica's consumer and
residential mortgage loans are originated consistent with the underwriting
approach described above, but also includes an assessment of each borrower's
personal financial condition, including a review of credit reports and related
FICO scores (a type of credit score used to assess an applicant's credit risk)
and verification of income and assets. Comerica does not originate subprime
loans. Although a standard industry definition for subprime loans (including
subprime mortgage loans) does not exist, Comerica defines subprime loans as
specific product offerings for higher risk borrowers, including individuals with
one or a combination of high credit risk factors. These credit factors include
low FICO scores, poor patterns of payment history, high debt-to-income ratios
and elevated loan-to-value. We generally consider subprime FICO scores to be
those below 620 on a secured basis (excluding loans with cash or near-cash
collateral and adequate income to make payments) and below 660 for unsecured
loans. Residential mortgage loans retained in the portfolio are largely
relationship based. The remaining loans are typically eligible to be sold on the
secondary market. Adjustable rate loans are limited to standard conventional
loan programs.

EMPLOYEES

As of December 31,
2016, Comerica and
its subsidiaries had 7,659
full-time and 490
part-time employees.

AVAILABLE
INFORMATION

Comerica maintains an Internet
website at www.comerica.com where the Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and all amendments to those reports are available without charge,
as soon as reasonably practicable after those reports are filed with or
furnished to the SEC. The Code of Business Conduct and Ethics for Employees, the
Code of Business Conduct and Ethics for Members of the Board of Directors and
the Senior Financial Officer Code of Ethics adopted by Comerica are also
available on the Internet website and are available in print to any shareholder
who requests them. Such requests should be made in writing to the Corporate
Secretary at Comerica Incorporated, Comerica Bank Tower, 1717 Main Street, MC
6404, Dallas, Texas 75201.

In addition, pursuant to
regulations adopted by the FRB, Comerica makes additional regulatory
capital-related disclosures. Under these regulations, Comerica satisfies a
portion of these requirements through postings on its website, and Comerica has
done so and expects to continue to do so without also providing disclosure of
this information through filings with the SEC.

Where we have included web
addresses in this report, such as our web address and the web address of the
SEC, we have included those web addresses as inactive textual references only.
Except as specifically incorporated by reference into this report, information
on those websites is not part hereof.

Item 1A. Risk
Factors.

This report includes
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, Comerica may make other written and oral
communications from time to time that contain such statements. All statements
regarding Comerica's expected financial position, strategies and growth
prospects and general economic conditions Comerica expects to exist in the
future are forward-looking statements. The words, “anticipates,” “believes,”
“contemplates,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,”
“intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,”
“achievable,” “potential,” “strategy,” “goal,” “aspiration,” "opportunity,"
"initiative," “outcome,” “continue,” “remain,” “maintain,” "on course," “trend,”
“objective,” "looks forward," "projects," "models" and variations of such words
and similar expressions, or future or conditional verbs such as “will,” “would,”
“should,” “could,” “might,” “can,” “may” or similar expressions, as they relate
to Comerica or its management, are intended to identify forward-looking
statements.

Comerica cautions that
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements speak only as
of the date the statement is made, and Comerica does not undertake to update
forward-looking statements to reflect facts, circumstances, assumptions or
events that occur after the date the forward-looking statements are made. Actual
results could differ materially from those anticipated in forward-looking
statements and future results could differ materially from historical
performance.

In addition to factors mentioned
elsewhere in this report or previously disclosed in Comerica's SEC reports
(accessible on the SEC's website at www.sec.gov or on Comerica's website at
www.comerica.com), the factors contained below,
among others, could cause actual results to differ materially from
forward-looking statements, and future results could differ materially from
historical performance.

•

General
political, economic or industry conditions, either domestically or
internationally, may be less favorable than
expected.

Local, domestic, and
international events including economic, financial market, political and
industry specific conditions affect the financial services industry, directly
and indirectly. Conditions such as or related to inflation, recession,
unemployment, volatile interest rates, international conflicts and other
factors, such as real estate values, energy prices,

Monetary and fiscal policies of
various governmental and regulatory agencies, in particular the FRB, affect the
financial services industry, directly and indirectly. The FRB regulates the
supply of money and credit in the U.S. and its monetary and fiscal policies
determine in a large part Comerica's cost of funds for lending and investing and
the return that can be earned on such loans and investments. Changes in such
policies, including changes in interest rates, will influence the origination of
loans, the value of investments, the generation of deposits and the rates
received on loans and investment securities and paid on deposits. Changes in
monetary and fiscal policies are beyond Comerica's control and difficult to
predict. Comerica's financial condition and results of operations could be
materially adversely impacted by changes in governmental monetary and fiscal
policies.

•

Proposed
revenue enhancements and efficiency improvements may not be
achieved.

In July 2016 Comerica announced
the implementation of its efficiency and revenue initiative, GEAR Up (the
"initiative") and related financial targets. There may be changes in the scope
or assumptions underlying the initiative, delays in the anticipated timing of
activities related to the initiative and higher than expected or unanticipated
costs to implement them, and some benefits may not be fully achieved. As well,
even if the initiative is successful, many factors can influence the amount of
core noninterest expenses, some of which are not wholly in our control,
including changing regulations, benefits and health care costs, technology and
cybersecurity investments, outside processing expenses and litigation.

Furthermore, the implementation
of the initiative may have unintended impacts on Comerica's ability to attract
and retain business, customers and employees, and could result in disruptions to
systems, processes, controls and procedures. Any revenue enhancement ideas may
not be successful in the marketplace. Accordingly, Comerica's results of
operations and profitability may be negatively impacted, making it less
competitive and potentially causing a loss of market share. Additionally,
Comerica's future performance is subject to the various risks inherent to its
business and operations.

•

Comerica
must maintain adequate sources of funding and liquidity to meet regulatory
expectations, support its operations and fund outstanding
liabilities.

Comerica’s liquidity and ability
to fund and run its business could be materially adversely affected by a variety
of conditions and factors, including financial and credit market disruptions and
volatility or a lack of market or customer confidence in financial markets in
general, which may result in a loss of customer deposits or outflows of cash or
collateral and/or ability to access capital markets on favorable terms.

Other conditions and factors that
could materially adversely affect Comerica’s liquidity and funding include a
lack of market or customer confidence in, or negative news about, Comerica or
the financial services industry generally which also may result in a loss of
deposits and/or negatively affect the ability to access the capital markets; the
loss of customer deposits to alternative investments; counterparty availability;
interest rate fluctuations; general economic conditions; and the legal,
regulatory, accounting and tax environments governing our funding transactions.
Many of the above conditions and factors may be caused by events over which
Comerica has little or no control. There can be no assurance that significant
disruption and volatility in the financial markets will not occur in the future.
Further, Comerica's customers may be adversely impacted by such conditions,
which could have a negative impact on Comerica's business, financial condition
and results of operations.

In September 2014, U.S. banking
regulators issued a final rule implementing a quantitative liquidity requirement
in the U.S. generally consistent with the Liquidity Coverage Ratio ("LCR")
minimum liquidity measure established under the Basel III liquidity framework.
Under the final rule, Comerica is subject to a modified LCR standard, which
requires a financial institution to hold a minimum level of high-quality, liquid
assets to fully cover modified net cash outflows under a 30-day systematic
liquidity stress scenario. The rule was effective for Comerica on January 1,
2016. During the transition year, 2016, Comerica was required to maintain a
minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter, the
minimum required LCR will be 100 percent. For more information regarding the
LCR, please see the “Supervision and Regulation” section of this report. The
inability to access capital markets funding sources as needed could adversely
impact our level of regulatory-qualifying capital and ability to continue to
comply with the LCR framework.

Further, if Comerica is unable to
continue to fund assets through customer bank deposits or access funding sources
on favorable terms, or if Comerica suffers an increase in borrowing costs or
otherwise fails to manage liquidity effectively, Comerica’s liquidity, operating
margins, financial condition and results of operations may be materially
adversely affected.

Compliance
with more stringent capital and liquidity requirements may adversely
affect Comerica.

Comerica is required to satisfy
stringent capital and liquidity standards, including annual and mid-year stress
testing and quantitative standards for liquidity management, as a result of
capital and liquidity requirements in connection with Basel III and the
Dodd-Frank Act. Additional information on the regulatory capital and liquidity
requirements currently applicable to Comerica is set forth in the “Supervision
and Regulation” section of this report. These requirements, and any other new
laws or regulations related to capital and liquidity, could adversely affect
Comerica's ability to pay dividends or make equity repurchases, or could require
Comerica to reduce business levels or to raise capital, including in ways that
may adversely affect its results of operations or financial condition and/or
existing shareholders.

Further, our regulators may also
require us to satisfy additional, more stringent capital adequacy and liquidity
standards than those specified as part of the Dodd-Frank Act and the FRB's rules
implementing Basel III.

Maintaining higher levels of
capital and liquidity may reduce Comerica's profitability and otherwise
adversely affect its business, financial condition, or results of operations.

•

Declines
in the businesses or industries of Comerica's customers - in particular,
the energy industry - could cause increased credit losses or decreased
loan balances, which could adversely affect
Comerica.

Comerica's business customer base
consists, in part, of customers in volatile businesses and industries such as
the energy industry, the automotive production industry and the real estate
business. These industries are sensitive to global economic conditions, supply
chain factors and/or commodities prices. Any decline in one of those customers'
businesses or industries could cause increased credit losses, which in turn
could adversely affect Comerica. Further, any decline in these businesses or
industries could cause decreased borrowings, either due to reduced demand or
reductions in the borrowing base available for each customer loan.

In particular, oil and gas prices
have remained at lower levels since mid-2014. Loans in the Energy business line
were $2.3
billion, or less
than 5
percent of total
loans, at December 31,
2016. If oil and gas
prices become further depressed and remain depressed for an extended period of
time, Comerica's energy portfolio could experience increased credit losses,
which could adversely affect Comerica's financial results. Additionally, a
prolonged period of further decreased oil prices could also have a negative
impact on the Texas economy, which could have a material adverse effect on
Comerica’s business, financial condition and results of operations. For more
information regarding Comerica's energy portfolio, please see “Energy Lending”
beginning on page F-30 of the Financial Section of this report.

Although Comerica regularly
reviews credit exposure related to its customers and various industry sectors in
which it has business relationships, default risk may arise from events or
circumstances that are difficult to detect or foresee. Under such circumstances,
Comerica could experience an increase in the level of provision for credit
losses, nonperforming assets, net charge-offs and reserve for credit losses,
which could adversely affect Comerica's financial results.

Comerica is exposed to many types
of operational risk, including legal risk, the risk of fraud or theft by
employees or outsiders, failure of Comerica's controls and procedures and
unauthorized transactions by employees or operational errors, including clerical
or recordkeeping errors or those resulting from computer or telecommunications
systems malfunctions. Given the high volume of transactions at Comerica, certain
errors may be repeated or compounded before they are identified and resolved.
The occurrence of such operational risks can lead to other types of risks
including reputational and compliance risks that may amplify the adverse impact
to Comerica.

In particular, Comerica's
operations rely on the secure processing, storage and transmission of
confidential and other information on its technology systems and networks. Any
failure, interruption or breach in security of these systems could result in
failures or disruptions in Comerica's customer relationship management, general
ledger, deposit, loan and other systems.

Comerica may also be subject to
disruptions of its operating systems arising from events that are wholly or
partially beyond its control, which may include, for example, computer viruses,
cyber attacks (including cyber attacks resulting in the destruction or
exfiltration of data and systems), spikes in transaction volume and/or customer
activity, electrical or telecommunications outages, or natural disasters.
Although Comerica has programs in place related to business continuity, disaster
recovery and information security to maintain the confidentiality, integrity,
and availability of its systems, business applications and customer information,
such disruptions may give rise to interruptions in service to customers and loss
or liability to Comerica, including loss of customer data. Comerica has not
experienced a cyber attack which resulted in a loss of client data. However,
future cyber attacks could be more disruptive and damaging, and Comerica may not
be able to anticipate or prevent all such attacks.

The occurrence of any failure or
interruption in Comerica's operations or information systems, or any security
breach, could cause reputational damage, jeopardize the confidentiality of
customer information, result in a loss of customer business, subject Comerica to
regulatory intervention or expose it to civil litigation and financial loss or
liability, any of which could have a material adverse effect on
Comerica.

•Changes in
regulation or oversight may have a material adverse impact on Comerica's
operations.

Comerica is subject to extensive
regulation, supervision and examination by the U.S. Treasury, the Texas
Department of Banking, the FDIC, the FRB, the SEC, FINRA and other regulatory
bodies. Such regulation and supervision governs the activities in which Comerica
may engage. Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on Comerica's operations, investigations and limitations related to Comerica's
securities, the classification of Comerica's assets and determination of the
level of Comerica's allowance for loan losses. Any change in such regulation and
oversight, whether in the form of regulatory policy, regulations, legislation or
supervisory action, may have a material adverse impact on Comerica's business,
financial condition or results of operations. It is too soon for Comerica to
predict what legislative or regulatory changes may occur as a result of the
recent change in the U.S. presidential administration, or, if changes occur, the
ultimate effect they would have upon the financial condition or results of
operations of Comerica. The impact of any future legislation or regulatory
actions may adversely affect Comerica's businesses or operations.

•

Comerica
relies on other companies to provide certain key components of its
business infrastructure, and certain failures could materially adversely
affect operations.

Comerica faces the risk of
operational disruption, failure or capacity constraints due to its dependency on
third party vendors for components of its business infrastructure. Third party
vendors provide certain key components of Comerica's business infrastructure,
such as data processing and storage, payment processing services, recording and
monitoring transactions, internet connections and network access, clearing
agency and card processing services. While Comerica conducts due diligence prior
to engaging with third party vendors, it does not control their operations.
Further, while Comerica's vendor management policies and practices are designed
to comply with current vendor regulations, these policies and practices cannot
eliminate this risk. In this context, any vendor failure to properly deliver
these services could adversely affect Comerica’s business operations, and result
in financial loss, reputational harm, and/or regulatory action.

•

Changes
in the financial markets, including fluctuations in interest rates and
their impact on deposit pricing, could adversely affect Comerica's net
interest income and balance sheet.

The operations of financial
institutions such as Comerica are dependent to a large degree on net interest
income, which is the difference between interest income from loans and
investments and interest expense on deposits and borrowings. Prevailing economic
conditions, the trade, fiscal and monetary policies of the federal government
and the policies of various regulatory agencies all affect market rates of
interest and the availability and cost of credit, which in turn significantly
affect financial institutions' net interest income and the market value of its
investment securities. Interest rates over the past several years have remained
at low levels, even following the Federal Open Market Committee's 25 basis point
rate rises in December 2015 and 2016. A continued low interest rate environment
may continue to adversely affect the interest income Comerica earns on loans and
investments. For a discussion of Comerica's interest rate sensitivity, please
see, “Market and Liquidity Risk” beginning on page F-32 of the Financial
Section of this report.

Volatility in interest rates can
also result in disintermediation, which is the flow of funds away from financial
institutions into direct investments, such as federal government and corporate
securities and other investment vehicles, which, because of the absence of
federal insurance premiums and reserve requirements, generally pay higher rates
of return than financial institutions. Comerica's financial results could be
materially adversely impacted by changes in financial market
conditions.

•

Reduction
in our credit ratings could adversely affect Comerica and/or the holders
of its securities.

Rating agencies regularly
evaluate Comerica, and their ratings are based on a number of factors, including
Comerica's financial strength as well as factors not entirely within its
control, including conditions affecting the financial services industry
generally. There can be no assurance that Comerica will maintain its current
ratings. In February 2016, Standard & Poor's downgraded Comerica's long-term
senior credit ratings one notch to BBB+ and Comerica Bank's long and short-term
credit ratings one notch to A- and A-2, respectively. In March 2015, Moody's
Investors Service put global bank ratings on review following the publication of
revised bank rating methodology and in May 2015, it downgraded Comerica Bank's
long-term senior credit ratings one notch to A3. In February 2016, Moody's
revised its outlook to "Negative." While recent credit rating actions have had
little to no detrimental impact on Comerica's profitability, borrowing costs, or
ability to access the capital markets, future downgrades to Comerica's or its
subsidiaries' credit ratings could adversely affect Comerica's profitability,
borrowing costs, or ability to access the capital markets or otherwise have a
negative effect on Comerica's results of operations or financial condition. If
such a reduction placed Comerica's or its subsidiaries' credit

ratings below investment grade,
it could also create obligations or liabilities under the terms of existing
arrangements that could increase Comerica's costs under such arrangements.
Additionally, a downgrade of the credit rating of any particular security issued
by Comerica or its subsidiaries could negatively affect the ability of the
holders of that security to sell the securities and the prices at which any such
securities may be sold.

•

The
soundness of other financial institutions could adversely affect
Comerica.

Comerica's ability to engage in
routine funding transactions could be adversely affected by the actions and
commercial soundness of other financial institutions. Financial services
institutions are interrelated as a result of trading, clearing, counterparty or
other relationships. Comerica has exposure to many different industries and
counterparties, and it routinely executes transactions with counterparties in
the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other institutional clients. As a
result, defaults by, or even rumors or questions about, one or more financial
services institutions, or the financial services industry generally, have led,
and may further lead, to market-wide liquidity problems and could lead to losses
or defaults by us or by other institutions. Many of these transactions could
expose Comerica to credit risk in the event of default of its counterparty or
client. In addition, Comerica's credit risk may be impacted when the collateral
held by it cannot be realized upon or is liquidated at prices not sufficient to
recover the full amount of the financial instrument exposure due to Comerica.
There is no assurance that any such losses would not adversely affect, possible
materially in nature, Comerica.

•

The
introduction, implementation, withdrawal, success and timing of business
initiatives and strategies may be less successful or may be different than
anticipated, which could adversely affect Comerica's
business.

Comerica makes certain
projections and develops plans and strategies for its banking and financial
products. If Comerica does not accurately determine demand for its banking and
financial product needs, it could result in Comerica incurring significant
expenses without the anticipated increases in revenue, which could result in a
material adverse effect on its business.

•

Damage
to Comerica’s reputation could damage its
businesses.

With consumers increasingly
interested in doing business with companies they admire and trust, reputational
risk is an increasing concern for business. Such risks include compliance
issues, operational challenges, or a strategic, high profile event. Comerica's
business is based on the trust of its customers, communities, and entire value
chain, which makes managing reputational risk extremely important. News or
other publicity that impairs Comerica's reputation, or the reputation of the
financial services industry generally, can therefore cause significant harm to
Comerica’s business and prospects. Further, adverse publicity or negative
information posted on social media websites regarding Comerica, whether or not
true, may result in harm to Comerica’s prospects.

•

Comerica
may not be able to utilize technology to efficiently and effectively
develop, market, and deliver new products and services to its customers.

The financial services industry
experiences rapid technological change with regular introductions of new
technology-driven products and services. The efficient and effective utilization
of technology enables financial institutions to better serve customers and to
reduce costs. Comerica's future success depends, in part, upon its ability to
address the needs of its customers by using technology to market and deliver
products and services that will satisfy customer demands, meet regulatory
requirements, and create additional efficiencies in Comerica's operations.
Comerica may not be able to effectively develop new technology-driven products
and services or be successful in marketing or supporting these products and
services to its customers, which could have a material adverse impact on
Comerica's financial condition and results of operations.

•

Competitive
product and pricing pressures among financial institutions within
Comerica's markets may change.

Comerica operates in a very
competitive environment, which is characterized by competition from a number of
other financial institutions in each market in which it operates. Comerica
competes in terms of products and pricing with large national and regional
financial institutions and with smaller financial institutions. Some of
Comerica's larger competitors, including certain nationwide banks that have a
significant presence in Comerica's market area, may make available to their
customers a broader array of product, pricing and structure alternatives and,
due to their asset size, may more easily absorb credit losses in a larger
overall portfolio. Some of Comerica's competitors (larger or smaller) may have
more liberal lending policies and processes.

Additionally, the financial
services industry is subject to extensive regulation. For more information, see
the “Supervision and Regulation” section of this report. Such regulations may
require significant additional investments in technology, personnel or other
resources or place limitations on the ability of financial institutions,
including Comerica, to engage in certain activities. Comerica's competitors may
be subject to a significantly different or reduced degree of regulation due

to their asset size or types of
products offered. They may also have the ability to more efficiently utilize
resources to comply with regulations or may be able to more effectively absorb
the costs of regulations into their existing cost structure.

If Comerica is unable to compete
effectively in products and pricing in its markets, business could decline,
which could have a material adverse effect on Comerica's business, financial
condition or results of operations.

Comerica uses a variety of
financial tools, models and other methods to anticipate customer behavior as a
part of its strategic planning and to meet certain regulatory requirements.
Individual, economic, political, industry-specific conditions and other factors
outside of Comerica's control, such as fuel prices, energy costs, real estate
values or other factors that affect customer income levels, could alter
predicted customer borrowing, repayment, investment and deposit practices. Such
a change in these practices could materially adversely affect Comerica's ability
to anticipate business needs and meet regulatory requirements.

Any
future strategic acquisitions or divestitures may present certain risks to
Comerica's business and operations.

Difficulties in capitalizing on
the opportunities presented by a future acquisition may prevent Comerica from
fully achieving the expected benefits from the acquisition, or may cause the
achievement of such expectations to take longer to realize than expected.

Further, the assimilation of the
acquired entity's customers and markets could result in higher than expected
deposit attrition, loss of key employees, disruption of Comerica's businesses or
the businesses of the acquired entity or otherwise adversely affect Comerica's
ability to maintain relationships with customers and employees or achieve the
anticipated benefits of the acquisition. These matters could have an adverse
effect on Comerica for an undetermined period. Comerica will be subject to
similar risks and difficulties in connection with any future decisions to
downsize, sell or close units or otherwise change the business mix of
Comerica.

•

Management's
ability to maintain and expand customer relationships may differ from
expectations.

The financial services industry
is very competitive. Comerica not only vies for business opportunities with new
customers, but also competes to maintain and expand the relationships it has
with its existing customers. While management believes that it can continue to
grow many of these relationships, Comerica will continue to experience pressures
to maintain these relationships as its competitors attempt to capture its
customers. Failure to create new customer relationships and to maintain and
expand existing customer relationships to the extent anticipated may adversely
impact Comerica's earnings.

•

Management's
ability to retain key officers and employees may
change.

Comerica's future operating
results depend substantially upon the continued service of its executive
officers and key personnel. Comerica's future operating results also depend in
significant part upon its ability to attract and retain qualified management,
financial, technical, marketing, sales and support personnel. Competition for
qualified personnel is intense, and Comerica cannot ensure success in attracting
or retaining qualified personnel. There may be only a limited number of persons
with the requisite skills to serve in these positions, and it may be
increasingly difficult for Comerica to hire personnel over time.

Further, Comerica's ability to
retain key officers and employees may be impacted by legislation and regulation
affecting the financial services industry. In 2016, the FRB, OCC and several
other federal financial regulators revised and re-proposed rules to implement
Section 956 of the Dodd-Frank Act. Section 956 directed regulators to
jointly prescribe regulations or guidelines prohibiting incentive-based payment
arrangements, or any feature of any such arrangement, at covered financial
institutions that encourage inappropriate risks by providing excessive
compensation or that could lead to a material financial loss. Consistent with
the Dodd-Frank Act, the proposed rule would not apply to institutions with total
consolidated assets of less than $1 billion, and would impose heightened
standards for institutions with $50 billion or more in total consolidated
assets, which includes Comerica. For these larger institutions, the proposed
rule would require the deferral of at least 40 percent of incentive-based
payments for designated executives and significant risk-takers who individually
have the ability to expose the institution to possible losses that are
substantial in relation to the institution's size, capital or overall risk
tolerance. Moreover, incentive-based compensation of these individuals would be
subject to potential clawback for seven years following vesting. Further, the
rule imposes enhanced risk management controls and governance and internal
policy and procedure requirements with respect to incentive compensation.
Accordingly, Comerica may be at a disadvantage to offer competitive compensation
compared to other financial institutions (as referenced above) or companies in
other industries, which may not be subject to the same requirements.

Comerica's business, financial
condition or results of operations could be materially adversely affected by the
loss of any of its key employees, or Comerica's inability to attract and retain
skilled employees.

•

Legal
and regulatory proceedings and related matters with respect to the
financial services industry, including those directly involving Comerica
and its subsidiaries, could adversely affect Comerica or the financial
services industry in general.

Comerica has been, and may in the
future be, subject to various legal and regulatory proceedings. It is inherently
difficult to assess the outcome of these matters, and there can be no assurance
that Comerica will prevail in any proceeding or litigation. Any such matter
could result in substantial cost and diversion of Comerica's efforts, which by
itself could have a material adverse effect on Comerica's financial condition
and operating results. Further, adverse determinations in such matters could
result in actions by Comerica's regulators that could materially adversely
affect Comerica's business, financial condition or results of
operations.

Comerica establishes reserves for
legal claims when payments associated with the claims become probable and the
costs can be reasonably estimated. Comerica may still incur legal costs for a
matter even if it has not established a reserve. In addition, due to the
inherent subjectivity of the assessments and unpredictability of the outcome of
legal proceedings, the actual cost of resolving a legal claim may be
substantially higher than any amounts reserved for that matter. The ultimate
resolution of a pending legal proceeding, depending on the remedy sought and
granted, could adversely affect Comerica's results of operations and financial
condition.

•

Methods
of reducing risk exposures might not be
effective.

Instruments, systems and
strategies used to hedge or otherwise manage exposure to various types of
credit, market, liquidity, operational, compliance, financial reporting and
strategic risks could be less effective than anticipated. As a result, Comerica
may not be able to effectively mitigate its risk exposures in particular market
environments or against particular types of risk, which could have a material
adverse impact on Comerica's business, financial condition or results of
operations.

•

Terrorist
activities or other hostilities may adversely affect the general economy,
financial and capital markets, specific industries, and
Comerica.

Terrorist attacks or other
hostilities may disrupt Comerica's operations or those of its customers. In
addition, these events have had and may continue to have an adverse impact on
the U.S. and world economy in general and consumer confidence and spending in
particular, which could harm Comerica's operations. Any of these events could
increase volatility in the U.S. and world financial markets, which could harm
Comerica's stock price and may limit the capital resources available to Comerica
and its customers. This could have a material adverse impact on Comerica's
operating results, revenues and costs and may result in increased volatility in
the market price of Comerica's common stock.

Comerica has significant
operations and a significant customer base in California, Texas, Florida and
other regions where natural and other disasters may occur. These regions are
known for being vulnerable to natural disasters and other risks, such as
tornadoes, hurricanes, earthquakes, fires, droughts and floods, the nature and
severity of which may be impacted by climate change. These types of natural
catastrophic events at times have disrupted the local economy, Comerica's
business and customers and have posed physical risks to Comerica's property. In
addition, catastrophic events occurring in other regions of the world may have
an impact on Comerica's customers and in turn, on Comerica. A significant
catastrophic event could materially adversely affect Comerica's operating
results.

•

The tax
treatment of corporations could be subject to potential legislative,
administrative or judicial changes or
interpretations.

The present federal income tax
treatment of corporations may be modified by legislative, administrative or
judicial changes or interpretations at any time. For example, the current
administration has indicated it will propose reductions to the corporate
statutory tax rate. A decline in the federal corporate tax rate may lower
Comerica’s tax provision expense. However, it may also significantly
decrease the value of Comerica’s deferred tax assets (“DTAs”), which would
result in a reduction of net income in the period in which the tax change is
enacted. At December 31, 2016, Comerica’s net DTAs were approximately $217
million.

As well, if the President and
Congress approve comprehensive tax reform, low-income housing tax credits
(LIHTCs), New Markets Tax Credits (NMTCs), the beneficial tax treatment of
bank-owned life insurance or other current tax positions taken by Comerica could
be at risk. We are unable to predict whether any of these changes, or other
proposals, will ultimately be enacted. Any such changes could adversely affect
Comerica.

From time to time accounting
standards setters change the financial accounting and reporting standards that
govern the preparation of Comerica's financial statements. These changes can be
difficult to predict and can materially impact how Comerica records and reports
its financial condition and results of operations. In some cases, Comerica could
be required to apply a new or revised standard retroactively, resulting in
changes to previously reported financial results, or a cumulative charge to
retained earnings.

•

Comerica's
accounting policies and processes are critical to the reporting of
financial condition and results of operations. They require management to
make estimates about matters that are uncertain.

Accounting policies and processes
are fundamental to how Comerica records and reports the financial condition and
results of operations. Management must exercise judgment in selecting and
applying many of these accounting policies and processes so they comply with
U.S. GAAP. In some cases, management must select the accounting policy or method
to apply from two or more alternatives, any of which may be reasonable under the
circumstances, yet may result in the Company reporting materially different
results than would have been reported under a different
alternative.

Management has identified certain
accounting policies as being critical because they require management's judgment
to make difficult, subjective or complex judgments about matters that are
uncertain. Materially different amounts could be reported under different
conditions or using different assumptions or estimates. Comerica has established
detailed policies and control procedures that are intended to ensure these
critical accounting estimates and judgments are well controlled and applied
consistently. In addition, the policies and procedures are intended to ensure
that the process for changing methodologies occurs in an appropriate manner.
Because of the uncertainty surrounding management's judgments and the estimates
pertaining to these matters, Comerica cannot guarantee that it will not be
required to adjust accounting policies or restate prior period financial
statements. See “Critical Accounting Policies” on pages F-38 through F-41
of the Financial Section of this report and Note 1 of the Notes to
Consolidated Financial Statements located on pages F-49 through F-61 of the
Financial Section of this report.

Item 1B. Unresolved
Staff Comments.

None.

Item 2. Properties.

The executive offices of Comerica
are located in the Comerica Bank Tower, 1717 Main Street, Dallas, Texas 75201.
Comerica Bank occupies six floors of the building, plus additional space on the
building's lower level. Comerica does not own the Comerica Bank Tower space, but
has naming rights to the building and leases the space from an unaffiliated
third party. The lease for such space used by Comerica and its subsidiaries
extends through September 2023. Comerica's Michigan headquarters are located in
a 10-story building in the central business district of Detroit, Michigan at 411
W. Lafayette, Detroit, Michigan 48226. Such building is owned by Comerica Bank.
As of December 31,
2016, Comerica,
through its banking affiliates, operated at a total of 591 locations. This
includes banking centers, trust services locations, and/or loan production or
other financial services offices, primarily in the States of Texas, Michigan,
California, Florida and Arizona. Of the 591 locations, 236 were owned and 355
were leased. As of December 31,
2016, affiliates
also operated from leased spaces in Denver, Colorado; Wilmington, Delaware;
Oakbrook Terrace, Illinois; Boston, Massachusetts; Minneapolis, Minnesota;
Morristown, New Jersey; New York, New York; Rocky Mount, North Carolina;
Memphis, Tennessee; McLean, Virginia; Bellevue and Seattle, Washington;
Monterrey, Mexico; Toronto, Ontario, Canada and Windsor, Ontario, Canada.
Comerica and its subsidiaries own, among other properties, a check processing
center in Livonia, Michigan, and three buildings in Auburn Hills, Michigan, used
mainly for lending functions and operations.

Item 3. Legal
Proceedings.

Please see Note 21
of the Notes to Consolidated Financial Statements located on pages F-100
through F-101 of the Financial Section of this report.

The common stock of Comerica
Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol:
CMA). At February 7, 2017, there were approximately 9,581 record holders of
Comerica's common stock.

Sales Prices
and Dividends

Quarterly cash dividends were
declared during 2016
and 2015 totaling $0.89 and $0.83 per common share per year,
respectively. The following table sets forth, for the periods indicated, the
high and low sale prices per share of Comerica's common stock as reported on the
NYSE Composite Transactions Tape for all quarters of 2016 and 2015, as well as dividend
information.

Quarter

High

Low

Dividends Per
Share

Dividend Yield*

2016

Fourth

$

70.44

$

46.75

$

0.23

1.6

%

Third

47.81

38.39

0.23

2.1

Second

47.55

36.27

0.22

2.1

First

41.74

30.48

0.21

2.3

2015

Fourth

$

47.44

$

39.52

$

0.21

1.9

%

Third

52.93

40.01

0.21

1.8

Second

53.45

44.38

0.21

1.7

First

47.94

40.09

0.20

1.8

*
Dividend yield is calculated by annualizing the quarterly dividend per
share and dividing by an average of the high and low price in the
quarter.

A discussion of dividend
restrictions is set forth in Note 20 of the Notes to Consolidated
Financial Statements located on pages F-99 through F-100 of the Financial
Section of this report, in the "Capital" section on pages F-19 through F-22 of
the Financial Section of this report and in the “Supervision and Regulation”
section of this report.

Performance
Graph

Our performance graph is
available under the caption "Performance Graph" on page F-2 of the Financial
Section of this report.

Purchases of
Equity Securities by the Issuer and Affiliated Purchasers

On July 26, 2016, the Board of
Directors of Comerica authorized the repurchase of up to an additional 10.0
million shares of Comerica Incorporated outstanding common stock, in addition to
the 5.7 million shares remaining at June 30, 2016 under the Board's prior
authorizations for the equity repurchase program initially approved in November
2010. Including the July 2016 authorization, a total of 50.3 million shares and
14.1 million warrants (12.1 million share-equivalents) have been authorized for
repurchase under the equity repurchase program since its inception in 2010.
There is no expiration date for Comerica's equity repurchase program.

The following table summarizes
Comerica's equity repurchase activity for the year ended December 31,
2016.

Comerica
made no repurchases of warrants under the repurchase program during the
year ended December 31,
2016.
Upon exercise of a warrant, the number of shares with a value equal to the
aggregate exercise price is withheld from an exercising warrant holder as
payment (known as a "net exercise provision"). During the year ended
December 31,
2016,
Comerica withheld the equivalent of approximately 2,319,000 shares
to cover an aggregate of $68.2
million
in exercise price and issued approximately 2,317,000 shares
to the exercising warrant holders. Shares withheld in connection with the
net exercise provision are not included in the total number of shares or
warrants purchased in the above table.

(b)

Maximum
number of shares and warrants that may yet be purchased under the publicly
announced plans or programs.

(c)

Includes
approximately 235,000 shares
(including 9,000 shares
in the quarter ended December 31,
2016)
purchased pursuant to deferred compensation plans and shares purchased
from employees to pay for taxes related to restricted stock vesting under
the terms of an employee share-based compensation plan and 26 shares
purchased by affiliated purchasers through employee benefits plan
transactions during the year ended December 31,
2016.
These transactions are not considered part of Comerica's repurchase
program.

(d)

Includes
July 26, 2016 equity repurchase authorization for up to an additional 10.0
million shares.

Item 6. Selected
Financial Data.

Reference is made to the caption
“Selected Financial Data” on page F-3 of the Financial Section of this report.

Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.

Reference is made to the sections
entitled “2016 Overview and 2017 Outlook,” “Results of Operations," "Strategic
Lines of Business," "Balance Sheet and Capital Funds Analysis," "Risk
Management," "Critical Accounting Policies," "Supplemental Financial Data" and
"Forward-Looking Statements" on pages F-4 through F-43 of the Financial Section
of this report.

Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.

Reference is made to the
subheadings entitled “Market and Liquidity Risk,” “Operational Risk,”
“Compliance Risk” and “Strategic Risk” on pages F-32 through F-37 of the
Financial Section of this report.

Item 8. Financial
Statements and Supplementary Data.

Reference is made to the sections
entitled “Consolidated Balance Sheets,” “Consolidated Statements of Income,”
“Consolidated Statements of Comprehensive Income,” “Consolidated Statements of
Changes in Shareholders' Equity,” “Consolidated Statements of Cash Flows,”
“Notes to Consolidated Financial Statements,” “Report of Management,” “Reports
of Independent Registered Public Accounting Firm,” and “Historical Review” on
pages F-44 through F-114 of the Financial Section of this report.

Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.

None.

Item 9A. Controls
and Procedures.

Disclosure
Controls and Procedures

As required by
Rule 13a-15(b) of the Exchange Act, management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation as of the
end of the period covered by this Annual Report on Form 10-K, of the
effectiveness of our disclosure controls and procedures as defined in Exchange
Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that Comerica's disclosure controls and
procedures were effective as of the end of the period covered by this Annual
Report on Form 10-K.

Management's annual report on
internal control over financial reporting and the related attestation report of
Comerica's registered public accounting firm are included on pages F-109
and F-110 in the Financial Section of this report.

As required by
Rule 13a-15(d) of the Exchange Act, management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of our
internal control over financial reporting to determine whether any changes
occurred during the period covered by this Annual Report on Form 10-K that
have materially affected, or are reasonably likely to materially affect,
Comerica's internal control over financial reporting. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that there has
been no such change during the last quarter of the fiscal year covered by this
Annual Report on Form 10-K that has materially affected, or is reasonably
likely to materially affect, Comerica's internal control over financial
reporting.

Item 9B. Other
Information.

None.

PART
III

Item 10. Directors,
Executive Officers and Corporate Governance.

Comerica has a Senior Financial
Officer Code of Ethics that applies to the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer and the Treasurer. The Senior
Financial Officer Code of Ethics is available on Comerica's website at
www.comerica.com. If any substantive amendments
are made to the Senior Financial Officer Code of Ethics or if Comerica grants
any waiver, including any implicit waiver, from a provision of the Senior
Financial Officer Code of Ethics to the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer or the Treasurer, we will
disclose the nature of such amendment or waiver on our website.

The remainder of the response to
this item will be included under the sections captioned “Information About
Nominees,” “Committees and Meetings of Directors,” “Committee Assignments,”
“Executive Officers” and “Section 16(a) Beneficial Ownership Reporting
Compliance” of Comerica's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 25, 2017, which sections are hereby
incorporated by reference.

Item 11. Executive
Compensation.

The response to this item will be
included under the sections captioned “Compensation Committee Interlocks and
Insider Participation,” “Compensation Discussion and Analysis,” “Compensation of
Directors,” “Governance, Compensation and Nominating Committee Report,”
“2016 Summary Compensation Table,” “2016 Grants of Plan-Based Awards,”
“Outstanding Equity Awards at Fiscal Year-End 2016,” “2016 Option
Exercises and Stock Vested,” “Pension Benefits at Fiscal
Year-End 2016,” “2016 Nonqualified Deferred Compensation,” and
“Potential Payments upon Termination or Change of Control at Fiscal
Year-End 2016” of Comerica's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 25, 2017, which sections are
hereby incorporated by reference.

The response to this item will be
included under the sections captioned “Security Ownership of Certain Beneficial
Owners,” “Security Ownership of Management” and "Securities Authorized for
Issuance Under Equity Compensation Plans" of Comerica's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 25,
2017, which sections are hereby incorporated by reference.

The response to this item will be
included under the sections captioned “Director Independence and Transactions of
Directors with Comerica,” “Transactions of Related Parties with Comerica,” and
“Information about Nominees” of Comerica's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on April 25, 2017, which
sections are hereby incorporated by reference.

Item 14. Principal
Accountant Fees and Services.

The response to this item will be
included under the section captioned “Independent Registered Public Accounting
Firm” of Comerica's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 25, 2017, which section is hereby incorporated
by reference.

Financial
Statements: The financial statements that are filed as part of this report
are included in the Financial Section on pages F-44 through
F-111.

2.

All
of the schedules for which provision is made in the applicable accounting
regulations of the SEC are either not required under the related
instruction, the required information is contained elsewhere in the
Form 10-K, or the schedules are inapplicable and therefore have been
omitted.

3.

Exhibits:
The exhibits listed on the Exhibit Index on pages E-1 through E-5 of this
Form 10-K are filed with this report or are incorporated herein by
reference.

The graph shown below compares
the total returns (assuming reinvestment of dividends) of Comerica Incorporated
common stock, the S&P 500 Index, and the KBW Bank Index. The graph assumes
$100 invested in Comerica Incorporated common stock (returns based on stock
prices per the NYSE) and each of the indices on December 31, 2011 and the
reinvestment of all dividends during the periods presented.

The
performance shown on the graph is not necessarily indicative of future
performance.

Allowance for loan losses as
a percentage of total nonperforming loans

124

167

205

160

116

RATIOS

Net
interest margin (fully taxable equivalent)

2.71

%

2.60

%

2.70

%

2.84

%

3.03

%

Return
on average assets

0.67

0.74

0.89

0.85

0.83

Return
on average common shareholders’ equity

6.22

6.91

8.05

7.76

7.43

Dividend
payout ratio

32.48

28.33

24.09

23.29

20.52

Average common shareholders’
equity as a percentage of average assets

10.70

10.73

11.11

10.90

11.21

Common equity tier 1 capital
as a percentage of risk-weighted assets (d)

11.09

10.54

n/a

n/a

n/a

Tier
1 capital as a percentage of risk-weighted assets (d)

11.09

10.54

10.50

10.64

10.14

Common
equity ratio

10.68

10.52

10.70

10.97

10.67

Tangible
common equity as a percentage of tangible assets (c)

9.89

9.70

9.85

10.07

9.76

(a)

Effective
January 1, 2015, contractual changes to a card program resulted in a
change to the accounting presentation of the related revenues and
expenses. The effect of this change was an increase of $177 million in
2015 to both noninterest income and noninterest expenses. Amounts prior to
2015 reflect revenues from this card program net of related noninterest
expenses.

(b)

Noninterest
expenses in 2016 included restructuring charges of $93
million.

Ratios
calculated based on the risk-based capital requirements in effect at the
time. The U.S. implementation of the Basel III regulatory capital
framework became effective on January 1, 2015, with transitional
provisions.

Comerica Incorporated (the
Corporation) is a financial holding company headquartered in Dallas, Texas. The
Corporation's major business segments are the Business Bank, the Retail Bank and
Wealth Management. The core businesses are tailored to each of the Corporation's
three primary geographic markets: Michigan, California and Texas. Information
about the activities of the Corporation's business segments is provided in Note
23 to the consolidated financial
statements.

As a financial institution, the
Corporation's principal activity is lending to and accepting deposits from
businesses and individuals. The primary source of revenue is net interest
income, which is principally derived from the difference between interest earned
on loans and investment securities and interest paid on deposits and other
funding sources. The Corporation also provides other products and services that
meet the financial needs of customers which generate noninterest income, the
Corporation's secondary source of revenue. Growth in loans, deposits and
noninterest income is affected by many factors, including economic conditions in
the markets the Corporation serves, the financial requirements and economic
health of customers, and the ability to add new customers and/or increase the
number of products used by current customers. Success in providing products and
services depends on the financial needs of customers and the types of products
desired.

The accounting and reporting
policies of the Corporation and its subsidiaries conform to generally accepted
accounting principles (GAAP) in the United States (U.S.). The Corporation's
consolidated financial statements are prepared based on the application of
accounting policies, the most significant of which are described in Note
1
to the consolidated financial statements. The most critical of these
significant accounting policies are discussed in the “Critical Accounting
Policies” section of this financial review.

GROWTH IN
EFFICIENCY AND REVENUE INITIATIVE

In the second quarter 2016, the
Corporation launched the Growth in Efficiency and Revenue (GEAR Up) initiative
in order to meaningfully enhance profitability. Actions identified under this
initiative are expected to drive additional annual pre-tax income, before
restructuring charges, of approximately $270 million for full-year 2018.
Additional financial targets expected from GEAR Up include a double-digit return
on equity and an efficiency ratio at or below 60 percent by year-end
2018.

•

2016 progress included a
reduction in workforce and a significant reduction in retirement plan
expense due to a new retirement program, which together resulted in 2016
expense savings of more than $25 million, as well as the consolidation of
19 banking centers. For additional information regarding retirement plan
changes, refer to the "Critical Accounting Policies" section of this
financial review and Note 17 to the consolidated
financial statements.

•

Expense reductions are
expected to save an additional $125 million in full-year 2017, relative to
the 2016 GEAR Up savings of more than $25 million, and increase to
approximately $200 million in full-year 2018. This is to be achieved
through continued savings from the reduction in workforce and the new
retirement program, streamlining operational processes, real estate
optimization, including consolidating an additional 19 banking centers in
2017 as well as reducing office and operations space, selective
outsourcing of technology functions and reduction of technology system
applications.

•

Revenue enhancements are
expected to ramp-up to approximately $30 million in full-year 2017,
gradually increasing to approximately $70 million in full-year 2018,
through expanded product offerings, enhanced sales tools and training and
improved customer analytics to drive
opportunities.

•

Pre-tax restructuring
charges of $140 million to $160 million in total are expected to be
incurred through 2018. This includes restructuring charges totaling
$93
million, which
were incurred through December 31,
2016, and an
additional $25 million to $50 million expected in 2017. For additional
information regarding restructuring charges, refer to Note 22
to the consolidated financial statements.

OVERVIEW

•

Net income was $477 million in 2016, a decrease of
$44
million, or
8
percent,
compared to $521 million in 2015. Net income per diluted
common share was $2.68 in 2016, compared to $2.84
in 2015.
Excluding the after-tax impact of restructuring charges associated with
GEAR Up of $59 million, or $0.34 per share, net income increased $15
million, or 3 percent.

•

Average loans were
$49.0
billion in
2016,
an increase of $368 million, or 1
percent,
compared to 2015.
Excluding a $641 million decrease in Energy, average loans increased $1.0
billion, primarily reflecting increases in Commercial Real Estate,
National Dealer Services and Mortgage Banker Finance, partially offset by
decreases in general Middle Market and Corporate
Banking.

•

Average deposits decreased
$585
million, or
1
percent, to
$57.7
billion in
2016,
compared to 2015.
The decrease in average deposits reflected a decrease of $2.2 billion, or 7
percent, in
interest-bearing deposits, partially offset by an increase of $1.7 billion, or 6
percent, in
average noninterest-bearing deposits. The decrease in interest-bearing
deposits reflected decreases of $1.3
billion, or
6
percent, in
money market and interest-bearing checking deposits and $1.0 billion, or 24
percent, in
customer certificates of deposit. The decrease in average deposits
primarily reflected purposeful pricing discipline and strategic actions in
light of new Liquidity Coverage Ratio (LCR) rules, with the largest
decreases in

Net interest income was
$1.8
billion in
2016,
an increase
of $108
million, or
6
percent,
compared to 2015.
The increase
in net interest income resulted primarily from higher interest rates, loan
growth and a larger securities portfolio, partially offset by higher debt
costs.

•

The provision for credit
losses was $248 million in 2016, an increase of
$101
million
compared to 2015,
primarily reflecting increased reserves for Energy and energy-related
loans recorded in the first quarter 2016, partially offset by improved
credit quality in the remainder of the portfolio. Net credit-related
charge-offs were $157
million, or
0.32
percent of
average loans, for 2016, an increase of
$46
million
compared to 2015.
The increase was primarily due to an increase in charge-offs in the Energy
portfolio.

•

Noninterest income
increased $16
million, or
2
percent, in
2016,
compared to 2015.
Customer-driven fees increased $22 million and non-fee categories declined
$6 million. An increase in card fees as well as growth in fiduciary,
customer derivative and foreign exchange income was partially offset by
lower commercial lending fees and investment banking
income.

•

Noninterest expenses
increased $103
million, or
6
percent, in
2016,
compared to 2015.
Excluding $93
million of
restructuring charges related to the GEAR Up initiative and $33 million from the net release of
litigation reserves in 2015, noninterest expenses
decreased $23
million. This
primarily reflected a decrease of $48
million in
salaries and benefits expense, including GEAR Up savings estimated to be
in excess of $25 million as well as an additional decrease in pension
expense, partially offset by the impact of merit increases and one
additional day in 2016. Additionally, increases
in technology expense, outside processing fees and FDIC insurance premiums
were partially offset by decreases in state business taxes and gains from
the early termination of leveraged lease
transactions.

•

The provision for income
taxes decreased $36
million in
2016,
compared to 2015.
The effective tax rate was 28.8 percent in 2016, compared to 30.5 percent
in 2015,
primarily reflecting a $10 million increase in tax benefits from the early
termination of certain leveraged lease
transactions.

•

The quarterly dividend was
increased to 22 cents
per share in April 2016 and to 23
cents per
share in July 2016.

•

The Corporation repurchased
approximately 6.6 million shares of common stock
during 2016
under the equity repurchase program. Together with dividends of
$0.89
per share, $458 million, or 96
percent of
2016
net income, was returned to shareholders.

2017
OUTLOOK

Management expectations for
2017, compared to 2016, assuming a continuation of the
current economic and low rate environment as well as contributions from the GEAR
Up initiative of $30 million in revenue and $125 million in expense savings, are
as follows:

•

Average loans higher, in
line with Gross Domestic Product growth, reflecting increases in most
lines of business and reduced headwinds from a declining Energy
portfolio.

Full-year benefit from the
December rise in short-term rates expected to be more than $70 million,
assuming a 25 percent deposit beta.

•

Provision for credit losses
lower, with continued solid performance of the overall
portfolio.

◦

Provision and net
charge-offs in line with historical normal levels of 30-40 basis
points.

•

Noninterest income higher,
with the execution of GEAR Up opportunities, modest growth in treasury
management and card fees, as well as wealth management products such as
fiduciary and brokerage services.

◦

Increase of 4 percent to 6
percent.

•

Noninterest expenses lower,
reflecting lower restructuring charges and an additional $125 million in
GEAR Up savings, relative to 2016 GEAR Up savings of more than $25
million. Outside processing is expected to increase in line with growing
revenue. Headwinds include increased technology costs and higher FDIC
insurance expense, as well as typical inflationary pressure. The gains of
$13 million in 2016 from early terminations of certain leveraged lease
transactions are not expected to repeat.

◦

Restructuring charges of
$25 million to $50 million, compared to $93 million in
2016.

◦

Remaining noninterest
expenses 1 percent to 2 percent lower.

◦

Decrease of 4 percent to 5
percent including restructuring charges.

•

Income tax expense to
approximate 33 percent of pre-tax income excluding the impact of discrete
items such as the tax benefit related to stock compensation of
approximately $14 million recorded during January
2017.

The following provides a
comparative discussion of the Corporation's consolidated results of operations
for 2016 compared to 2015. A comparative discussion of
results for 2015
compared to 2014
is provided at the end of this section. For a discussion of the Critical
Accounting Policies that affect the Consolidated Results of Operations, see the
"Critical Accounting Policies" section of this Financial Review.

Average
rate is calculated on a fully taxable equivalent (FTE) basis using a
federal tax rate of 35%. The FTE adjustment to net interest income was $4
million in each of the three years
presented.

(b)

Accretion
of the purchase discount on the acquired loan portfolio of $4
million,
$7
million
and $34
million
in 2016,
2015 and
2014,
respectively, increased the net interest margin by 1 basis
point in both 2016 and
2015 and
6 basis
points in 2014.

(c)

Nonaccrual
loans are included in average balances reported and in the calculation of
average rates.

(d)

Includes
investment securities available-for-sale and investment securities
held-to-maturity. Average rate based on average historical cost. Carrying
value exceeded average historical cost by$143
million,
$100
million
and $12
million
in 2016,
2015 and
2014,
respectively.

(e)

Includes
substantially all deposits by foreign depositors; deposits are primarily
in excess of $100,000.

(f)

Medium-
and long-term debt average balances included $162
million,
$160
million
and $192
million
in 2016,
2015 and
2014,
respectively, for the gain attributed to the risk hedged with interest
rate swaps. Interest expense on medium-and long-term debt was reduced by
$60
million,
$70
million,
and $72
million
in 2016,
2015 and
2014,
respectively, for the net gains on these fair value hedge
relationships.

Net interest income is the
difference between interest earned on assets and interest paid on liabilities.
Gains and losses related to the effective portion of risk management interest
rate swaps that qualify as hedges are included with the interest expense of the
hedged item. Net interest income comprised 63
percent,
62
percent, and
66
percent of total
revenues in 2016,
2015, and 2014, respectively. The decrease in
net interest income as a percentage of total revenues in 2015 was due to an
increase in noninterest income resulting from a change in the accounting
presentation associated with contractual changes to a card program. Refer to the
Analysis of Net Interest Income and the Rate Volume Analysis tables above for an
analysis of net interest income for the years
ended December 31, 2016, 2015, and 2014
and details of the components of the change in net interest income for
2016 compared to 2015 and 2015 compared to 2014.

Net interest income was
$1.8
billion in
2016, an increase of $108
million compared to
2015. The increase in net interest
income resulted primarily from higher yields on loans and Federal Reserve Bank
(FRB) deposits, driven mainly by increases in short-term rates, and earning
asset volume, partially offset by higher funding costs, primarily the result of
higher costs on debt swapped to variable rate and new Federal Home Loan Bank
(FHLB) borrowings in the second quarter 2016. For additional information
regarding medium- and long-term debt, refer to Note 12 to the consolidated financial
statements. Average earning assets increased $1.4
billion, or
2
percent, primarily
reflecting increases of $2.1
billion in average
investment securities and $368
million in average
loans, partially offset by a decrease of $1.1
billion in average
interest-bearing deposits with banks.

The net interest margin (FTE) in
2016 increased 11 basis points to 2.71 percent,
from 2.60
percent in
2015, primarily due to higher loan
yields and the reinvestment of FRB deposits into higher yielding Treasury
securities, partially offset by the impact of higher funding costs. The increase
in loan yields primarily reflected a benefit from an increase in short-term
rates. Average balances deposited with the FRB were $4.9
billion and
$6.0
billion in
2016 and 2015, respectively, and are included
in “interest-

The Corporation utilizes various
asset and liability management strategies to manage net interest income exposure
to interest rate risk. Refer to the “Market and Liquidity Risk” section of this
financial review for additional information regarding the Corporation's asset
and liability management policies.

PROVISION FOR
CREDIT LOSSES

The provision for credit losses
was $248
million in
2016, compared to $147
million in
2015. The provision for credit losses
includes both the provision for loan losses and the provision for credit losses
on lending-related commitments.

The provision for loan losses is
recorded to maintain the allowance for loan losses at the level deemed
appropriate by the Corporation to cover probable credit losses inherent in the
portfolio. The provision for loan losses was $241
million in
2016, an increase of $99 million
compared to $142
million in
2015, primarily reflecting increased
reserves for Energy and energy-related loans recorded in the first quarter 2016,
partially offset by improved credit quality in the remainder of the
portfolio.

Net loan charge-offs in
2016 increased $46
million to
$146
million, or
0.30
percent of average
total loans, compared to $100
million, or
0.21
percent, in
2015. The increase primarily
reflected an increase in charge-offs in Energy and a decrease in recoveries in
Private Banking, partially offset by decreases in Technology and Life Sciences
and Small Business (primarily due to the charge-off of a single large credit in
2015).

The provision for credit losses
on lending-related commitments is recorded to maintain the allowance for credit
losses on lending-related commitments at the level deemed appropriate by the
Corporation to cover probable credit losses inherent in lending-related
commitments. The provision for credit losses on lending-related commitments was
$7
million in
2016 and $5
million in
2015. Lending-related commitment
charge-offs were $11
million in
2016 and $1
million in
2015.

For further discussion of the
allowance for loan losses and the allowance for credit losses on lending-related
commitments, including the methodology used in the determination of the
allowances and an analysis of the changes in the allowances, refer to Note
1
to the consolidated financial statements and the "Credit Risk" section of this
financial review.